For the CIT Group- It’s Like Christmas, But They’ll Still Shoot Their Eyes Out…
by Zero Hedge - October 30th, 2009 3:27 pm
Courtesy of Travis
According to an article published by the Associated Press, the billionaire investor, and bondholder Carl Ichan agreed today to support CIT’s restructuring and provide it with a billion dollar credit line- even if they do file for bankruptcy.
For weeks Ichan has been chomping at the bit on CIT’s restructuring heels- even offering to buy minority debt holders at sixty-cents on the dollar.
On Wednesday, CIT got a $4.5 billion line of credit from lenders and bondholders; in addition to the $3 billion in financing provided earlier this summer.
Yesterday marked the final countdown, as CIT bondholders could agree to a debt exchange for new debt terms and stock- but the results of the vote are still pending.
Goldman announced this morning it would shave some debt off the top, in exchange for a fee, of course.
This afternoon, Ichan changed his views on the offer after CIT agreed to changes- namely its decisions regarding the board of directors if it files for bankruptcy.
The CIT Group is the financier to some 2,000 venders which supply over 300,000 retail stores- according to the National Retail Federation.
With all the funding, lines of credit and promises- its like Christmas or Chanukah for the debt riddled CIT Group.
But they’ll still file for bankruptcy- or “shoot their eye out… kid…” like Ralphie in A Christmas Story.
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DiggWilbur Ross: “The Beginning Of A Huge Crash In Commercial Real Estate”
by Zero Hedge - October 30th, 2009 2:49 pm
Courtesy of Tyler Durden
In what would could pass for Cohen & Steers’ worst nightmare, Wilbur Ross today said that he anticipates essentially an Armageddon for US commercial real estate. What we fail to see is how this is news… What we fail to see even more is how the hell REITs are still trading where they are? It must be all those non-cash dividends, the staggering debt loads and the exploding cap rates which make them such an attractive proposition. As Ross points out: "All of the components of real estate value are going in the wrong direction simultaneously. Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up." Which begs the question: just because everyone knows the potential fall out associated with CRE, yet no proactive steps are taken to moderate these adverse developments, save a hope that the Fed will inflate debt sufficiently before 2012 when the refi crunch hits in earnest, does this make REITs a strong buy as BAC/ML has been claiming for months on end?
Some more perspective from Bloomberg:
Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross is not alone in his CRE gloom, and was…
THE UNCORRELATED RETURN MYTH?
by ilene - October 30th, 2009 2:07 pm
THE UNCORRELATED RETURN MYTH?
Courtesy of The Pragmatic Capitalist
I came across this interesting paper (which can be found in its entirety below) the other day, while perusing Paul Kedrosky’s website, regarding uncorrelated returns. The basic premise of the paper was that there is no such thing as uncorrelated assets. The author conveniently cherry picks the last 36 months to prove his point. Of course the last 36 months can easily be described as unique if not an outlier. Many have been quick to come to the conclusion that the last 36 months not only disprove the efficient market hypothesis, but also disprove the theory of uncorrelated assets. This is highly flawed in my opinion.
Let me begin to dissect this issue from the beginning (without getting bogged down in too much mundane theory). Anyone who is a regular reader has likely taken the time to read the “about us” section on the site. If so, you know that my investment theories aren’t just some cookie cutter “fill the Morningstar box” approach. I believe the efficient market hypothesis is one of the greatest tricks ever played on the investment community. Any market is nothing more than the summation of the decisions of its participants. Markets, by definition are highly complex dynamic systems that are susceptible to chaos. To assume that the summation of these decisions is somehow efficient would mean that the decision makers as a whole are efficient. While this might be true to some extent, human beings (and even the algorithms written by humans) are guaranteed to be inefficient decision makers in a chaotic system.
The investment world is the civilized version of natural selection. It cuts to the core of every emotion imaginable. When Joe Schmo goes to work for 25 years straight in an attempt to create a better life for his family and suddenly sees his life’s savings going down the tube because Lehman Bros went bankrupt you can’t possibly expect him to react rationally in such an environment. This is no different than the man whose family is attacked in the middle of the night. Do you expect that man to react rationally when everything he lives for is suddenly in harms way? Do human beings make rational and efficient decisions in chaotic scenarios? Even more important, will 1 million humans working…
Intraday SPY Volume Surprasses Yesterday’s Entire Volume Before 2PM
by Zero Hedge - October 30th, 2009 1:52 pm
Courtesy of Tyler Durden
The sense of market urgency can be seen when comparing yesterday’s and today’s market volume. All of yesterday’s SPY volume was surpassed by 1:30pm. Today’s key support level is 105.59 which is the September 31 closing price, and which has already been taken out: the next support is 104 (which was tested once already), with 102 next below it.
On NYSE Euronext 3rd Quarter Results
by Zero Hedge - October 30th, 2009 1:33 pm
Courtesy of Cheeky Bastard
This is a short analysis of the NYSE Euronext 3rd quarter results. It is needles to say the operator reported a decline in their overall earnings, given the conditions on the exchanges it operates. In this short overview it will become obvious that the chronic lack of any trading volume and the complete dominance of trading machines has a severe impact on the overall financial result of the operator.
NYSE Euronext (NYX) today reported net income of $125 million, or $0.48 per diluted share, for the third quarter of 2009, compared to net income of $174 million, or $0.66 per diluted share for the third quarter of 2008. Third quarter 2009 GAAP results include the impact from merger expenses and exit costs, the impact of the disposition of Hugin Group B.V., the sale of our investment in BM&F Bovespa and a fair value adjustment to our investment in BIDS Holdings, L.P. Pro forma non-GAAP diluted earnings per share excluding these items was $0.53 in the third quarter of 2009, compared to $0.72 in the third quarter of 2008.
The big drop is no surprise; given the amount of trading that went on in the same period of last year, a period which was marked by financial turmoil and large daily trading volumes. Since then many retail investors have pulled out of the, NYSE Euronext operated, exchanges due to the losses which they suffered in the period between October 2008 and March 2008, or because the trading cost were proved to be lower on other exchanges. The drop in the earnings could be prescribed to the lower volumes on the exchanges, and solely based on that this report would not be so important.
But what is important to note; is the drop in the market share endured by the exchanges which are operated by the company. This is a statement given by Duncan Niederauer, CEO of NYSE Euronext:
#333333;”>“We continue to see stabilization in our core businesses and significant progress on our new initiatives,” said Duncan L. Niederauer, CEO, NYSE Euronext. “We have successfully maintained market share in
…
Breaking Up The Too Big to Fails Will NOT Harm America’s Ability to Compete with Foreign Banks
by Zero Hedge - October 30th, 2009 1:32 pm
Courtesy of George Washington
I have previously debunked numerous false arguments used to defend the too big to fails. See this and this.
But the apologists for the TBTFs are now arguing that breaking up the beached whales … er, giant banks … will harm America’s ability to compete with foreign banks.
Joshua Rosner (managing director of an independent financial services research firm), has written an important essay debunking this argument:
Those who argue against a more proactive reduction in risk and size of TBTF institutions will, as always, revert to an argument that strikes a natural chord in every American’s heart: ‘Doing so would create an unleveled international playing field for our institutions relative to their international competitors’. Level playing fields are a worthy goal, but this is not a relevant argument. Instead, this tired bromide must be resoundingly dismissed on several counts:
- Those countries with the largest banks as a percentage of GDP (Iceland, Ireland, Switzerland) demonstrated that a concentration of banking power can cause significant sovereign risk and tilt global economic playing fields away from that country.
- The likely breakups of ING, Lloyds and KBC suggest that it is we who seek to support an unlevel playing field where we subsidize our TBTF banks while other nations recognize the policy failures of moral hazard. If we continue down this path we will likely be at risk of violating international fair trade regimes.
- When the “unlevel playing field” argument is cited, keep in mind this reasoning supports the disadvantaging of 8000+ community banks relative to our largest banks, all in the name of protecting big banks from governmentally- subsidized international competition.
- There is no longer any evidence that, beyond a cost of capital advantage that comes with implied government support, there are sustainable and tangible economies of scale arising from being the largest. The financial supermarket concept has been proven a failure. The only ones who benefit are the high-level executives.
- We must demand that our legislators no longer allow unelected officials at the independent Federal Reserve to sign international accords created by the TBTF banks through supra-national bodies like the Basel Committee.
- Are we to believe that if we did not have such large and globally dominant firms, US borrowers
…
Implied Correlation Hits New Six Month High
by Zero Hedge - October 30th, 2009 1:28 pm
Courtesy of Tyler Durden
The implied correlation reading between all asset classes has hit a 6 month high at 65.50, a jump which mimics the surge in the VIX. High implied correlation readings are indicative of crash risk/expectations.
First Sequential Monthly Increase In Stock Volume Since March
by Zero Hedge - October 30th, 2009 1:12 pm
Courtesy of Tyler Durden
The declining market volume as computers have taken over day trading, has been no surprise to anyone. What should come as a surprise is that October is the first month in which there is a volume pick up sequentially. With the end of the fiscal year for many market participants, is the time to look for greater fools finally here?
VIX Surges 17%
by Zero Hedge - October 30th, 2009 1:03 pm
Courtesy of Tyler Durden
Pent up demand anyone? It may be time for Bernanke to do another POMO… oh wait…oops
And Then There’s Phase Four
by ilene - October 30th, 2009 12:36 pm
Welcome to Paco Ahlgren at Ahlgren Multiverse: Experience is Everything. Paco has been a financial analyst and a portfolio manager for 18 years. He has also written an award-winning book "Discipline," a sci-fi adventure novel. - Ilene
And Then There’s Phase Four
Courtesy of Paco Ahlgren at Ahlgren Multiverse
“Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge."
- Alan Greenspan, June 25, 2009
"The US economy may witness double-digit inflation in a few years unless the central bank tightens up its monetary policy… Unless we roll in this whole degree of expansion, we will be in trouble… I am not talking 3-5 per cent inflation, I am talking double-digit inflation in the US.”
- Alan Greenspan, September 9, 2009
Man, the Dow hit 10,000! Happy days are here again! Right?
Wrong.
Do you know what I loathe about the word "recovery?" It can mean whatever you want it to. It’s sort of like using the word love. You might say you love sushi, or you love beef jerky, or you love Michael Jackson. Or whatever. But that’s a whole lot different, for instance, than saying you love your child. We can agree on that, right? Children are way more important than beef jerky. And Michael Jackson.
I can’t say I’m Alan Greenspan’s biggest fan anymore. He did, after all, betray his roots not so many months ago, when he essentially proclaimed free markets to be flawed. Those of us who have studied his career — and especially its beginnings — know better, of course; poor old Alan was just reacting to a political environment that needed someone to whom it could point its ugly, bureaucratic finger. Who better than Alan? Somebody had to take the blame, right? You can’t just have a financial meltdown without getting mad at somebody. My only beef with the poor man is that he actually agreed to do it. But then again, Alan Greenspan has been swimming in the Washington political sea for a very long time, so we really shouldn’t be all that surprised, should we? And, after all, he did play the let’s-create-the-illusion-of-wealth-by-making-money-cheap game. No, he took the appointments, scratched his ticket, and came up a loser. Unfortunately, he took the entire U.S. housing market — and subsequently the global economy — down in the process. Thanks Alan.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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