Category Archives: Investments

Legg Mason fights a new war | Equities vs Fixed Income

As fixed income loses the temporary sheen from 2008, Legg Mason bore the brunt of investor displeasure and lack of confidence losing $24 billion from fixed income schemes and close to $33 billion overall in the last quarter, 4 times more than the July – September Quarter. Most banks worldwide have reported losses in Fixed Income in the latest quarter as yields spike with China ready to go off the Charts from doubt in its banking system :lol

However that all seems to be passed as in after its results last week, news filtered in that new board member Nelson Peltz is selling an over 15% in H J Heinz ketchup worth $32 million and another $8 million in Tiffany’s Diamonds.

Interestingly, Legg Mason’s flagship Value fund is heavily invested in healthcare, read health insurers like Humana, Wellpoint and United Health who are celebrating after Scott Brown’s victory in Massachusetts! O What a tangled web we weave. Bill Miller, the fund’s Equities star also mentions of late his trust in the growing US GDP and in Equities. While we agree with the second, Obama’s latest belt-tightening measures may cloud America’s way on growing in double digits a year.

Fund Managers on Bills side in London and New York also feel more wary of heavily weighted China and India investments which we propose is heresy except that in China one must watch the for the bull entering the China Shop. And who’s invested in India? Not many more than 5 years ago..talk about oversimplification!!!

Note: From a September 09 flyer of the World #10 Asset manager, outflows of $33b would close out fixed income offerings in its entirety, leaving Bill Miller and $8 billion in equity that would be worth $800m, $40m seems at the top of the fair price range for 5%

Litterman leaves, GS closes Quant fund | Business Week

Robert Litterman, chairman of Goldman Sachs Group Inc.’s quantitative hedge-fund group, will step down at the end of this month, a move planned before President Barack Obama’s call yesterday to limit proprietary trading at banks, according to people familiar with the situation.

Litterman, a 24-year Goldman Sachs veteran, advised a unit that ran Global Equities Opportunities, a quantitative hedge fund that required a $3 billion cash infusion in 2007. The fund, which used mathematical models to trade securities, closed last month after its assets fell to $200 million from as much as $7.5 billion, according to two people familiar with the situation.

Litterman’s departure was not connected to the fund’s closure, the people said. Global Equities and Goldman Sachs’s Global Alpha fund lost value in August 2007 when many quantitative managers raced to exit trades simultaneously. In June 2008, Litterman said the hedge funds suffered because they were too large for a “de-leveraging explosion.”

Advantage zyaada | Litterman Said to Retire From Goldman Sachs Hedge-Fund Unit – BusinessWeek.

Where the Infrastructure Dollar went?

2009 was the year of the stimulus for the US. Though the Capitol talked mostly only about stimulus in terms of funds for highways and on setting up of recovery.gov, We started taking notice by June that indeed it was hard to track and hard to estimate..a lot of state and some police projects were awarded at the level of county and job savings ascribed to each to get to recovery.gov. Not entirely accurate but definitely a notch or two better than any other spending program i know. The rest of the jobs program will be best utilised probably by the same jobs..new roads, highways that needed even just guard rails, railway infrastructure.

In February, Obama made whistle-stop tours and exhorted the people to see how much they needed these highways and bridges, and how these were unfinished business:

Mr. Obama is proposing what he says is the largest increase in infrastructure spending since President Dwight Eisenhower created the Interstate Highway System in the 1950s.

“We will invest more than $100 billion and create nearly 400,000 jobs rebuilding our roads, our railways, our dangerously deficient dams, bridges and levees,” he said.

The president said funding infrastructure projects will also help create jobs in other areas of the economy. He specifically mentioned the Caterpillar company, which makes much of the heavy equipment used in road projects. Caterpillar recently announced more than 20,000 layoffs.

“And today, the Chairman and CEO of Caterpillar said that if the American Recovery and Reinvestment Plan passes, his company would be able to rehire some of those employees,” he said.

via VOA

By July, we were comparing dollars at each city:

Track These At Recovery.Gov In Time | NY Times

The NY Times story here was obviously received well because of the graphics and the comparative data, much of which may need to be reworked now. A look at recovery.gov shows 40-45% of the funds being drawn by county programs such as the 11921 awards in California, mostly grants and around 10% ($1.3 billion ) in contracts, going to police stations buying LCD Flat screen TVs and Crowd Control System upgrades, waste water collection systems, increase health center services and presumably the roads, bridges and the highways.

Out of the $158.7 billion awarded ( 58%) 13% has been received and more can probably be done now in receiving those funds and working out what is wrong with the process.

Nonetheless, many in the developing world and even Europe could also use the recovery.gov example to start cleaning the Augean stables of public works. Well begun is half done. But with only 12000 jobs related in Arizona and jobs being reported in fictional districts, well..someone needs to figure out what is wrong and fix it. Similarly Texas has only reported 20000 jobs created and the country as a whole is already reporting 600000 jobs created by the stimulus..obviously not going to match with the rising unemployment numbers..and i haven’t heard from any of these folk on twitter..strange?

In California, almost 45% has been allocated by the Department of Education ( 8 out of 18 billion )  and more than 15% to the Department of Transportation – Have people really seen these half a million jobs making a difference? Have these funds to school districts saved the schools or the teachers? There however the reports are still missing, probably dwarfed by the enormity of the task involved

An example of the agency wise allocation is in the included screen grab for Alabama on the right. It is a great time for people at these agencies to get back with the results. America needs it before going on another joyride with public funds. If you go by these statistics the journos at Reuters have done a pretty ‘funny’ piece with the stats

The second stimulus program may just be going the wrong way without a detailed success/failure report on the first one.

The new Jobs program

The “Jobs for Main street” , Whitehouse’s own repartee to the Wall street cats, is equally unrepentant getting another $40 billion for Department or Transportation, to teach us the ‘new deal’ all over again. The ARRA year has gone by and we are still thinking about another set of roads that will be up in ‘120 days’. I thought the overwhelming majority passed it because it was creating jobs? Especially now with the shadow inventory showing, it is time to tread a little cautiously and on sure footing not ‘sidings and tarpools’ The ARRA bill already has 7886 transportation projects underway.

An example of others who could have got the money is below from The Huffington Post

Demand for high-speed rail funding has well exceeded the expectations that existed when the recovery bill was signed last year. Currently, there are close to $60 billion in project applications from more than 30 states competing for the first $8 billion in federal high-speed rail funding, which will go out in a few months. Domestic and foreign investors and private industry have taken notice of the government’s initiative and the sector has exploded over the last few months, providing hope for new employment that can offset the massive losses in the automotive industry. All eyes are on Congress to see if they will follow through on the initial down payment in their next major transportation spending bill.

Jobs are being lost every month even two years after the recession began. While the number has stopped growing very fast, the number of jobs lost is growing every month without fail. These businesses cannot just wait for banks to start lending, and pretty soon we are going to be out of money to print.  We were losing more than 600,000 jobs every month just a few weeks back. This recovery will take much longer than in the Asia and Latam markets. The unemployment rate is still above 10% even after November showed up a huge improvement to just 11000 lost jobs ( just Kentucky lost 5000 out of this!) 15.4 million are still looking for work hopelessly stuck with a lasting unemployment with even the limited foreign worker visas going unrequited in this situation. The long term unemployed, looking for work for more than 6 months are a good 38.3% of the unemployed, another record for America.

More foreclosures

Thousands Of New York Area Home Owners Attend Mortgage Modification Event

Even as dismal numbers from the loan modification program caused an extension of the program till October 2010 ( see Geithner extends TARP) the latest shadow inventory nos ( detailing foreclosures shocked the nation with 1.7 million available for sale from foreclosures. St Louis got an award for 800 modifications to save homes from foreclosure! There seems to be no comparison between the two figures, and more is required than depending on just road construction to make new jobs

Probably some of the economists at Obama and Biden’s offices are already at work untangling the confusion of the stimulus and getting ready to tell us what has worked. I think it’s time.

A new strategic climate fund

Everyone is in Oil these days and with Dubai coming back off the cliff, China bankrolling African dreams, Indian energy corps going global and Russia waiting to come back from a contraction and Gazprom thru Europe without Ukraine, that is the light at the end of the tunnel. Though a lot of people have talked about it, a market for carbon credits has just taken off this year, Copenhagen may likely have an agreement and time is ripe for the right people to get into energy funds. Who better than the Governments and the World Bank…Great news to hear. Maybe some will bankroll ethanol the right way too! It’s a great collection of baubles from the O’nomics back team to clear out the Christmas tree. Rassmussen reports will love Obama and the markets will love this new Sheikh out of Texas and the sands.

The United States pledged on Monday to contribute $85 million to a $350 million multinational fund aimed at speeding up renewable energy and energy efficiency technologies in poor countries. U.S. Energy Secretary Steven Chu also announced a high-level meeting will be held in Washington next year of major developed countries energy ministers to discuss global deployment of clean energy technology. Chu made the announcements on the sidelines of a Dec. 7-18 international climate conference in Copenhagen. The talks temporarily stalled on Monday when African countries walked out, accusing rich countries of trying to kill the U.N. Kyoto Protocol which set targets for emissions cuts by most industrialised countries. Projects which the fund will support include a plan to speed affordable solar-generated lighting systems and LED lanterns to those without access to electricity. Chu said the devices would eliminate air pollution from indoor kerosene lamps that he said contributes to 1.6 million deaths per year in poor countries. Other facets of the programme are the encouragement of more energy-efficient appliances in developing countries and rich country information-sharing of clean energy technologies. The White House said the financing would enhance a World Bank strategic climate fund that helps poor countries develop national renewable energy plans. Italy, Australia, Britain, the Netherlands, Norway and Switzerland also are participating and already have promised funds.

via MyFeedMe – Show Article.

Paulson busy buying banks | MarketWatch

As you see below, Paulson’s fund has added BAC, Citi, Indymac, GS and even State Street using the enhanced corpus from shorting the world’s top banks against the MBS boom in 2007 when we had tipped over in volumes and quality of MBS/Sub-Prime

Interestingly, Dimon’s JP Morgan does not figure in this list.  In an earlier article we had also brought out media reports of his play on the Kraft Cadbury deal!  It wouldn’t be surprising if he gets a couple of ME And Asian investors in his hedge funds in a couple of months. He is sitting on a pretty pile and it will be much bigger in a couple of months when the banks start making some real gains after the accounting bounce back in the last 2 quarters in their fixed income portfolio

Paulson, one of the world's largest hedge-fund firms, held 300 million shares of Citigroup Inc. (C 4.15, +0.10, +2.47%) at the end of September, according to a regulatory filing late Friday. Three months earlier, the firm had no stake in the financial-services giant.

The stake in Citi was valued at $1.45 billion on Sept. 30, according to the filing. It’s not clear whether Paulson still owns the stake, but the firm doesn't specialize in rapid trading.

Citi stock climbed 2.5% to $4.15 during after-hours action Friday.

The Citigroup investment follows a big move by Paulson into Bank of America Corp. (BAC 16.00, +0.02, +0.13%) shares earlier this year. See story on Paulson's Bank of America stake.

Paulson, run by John Paulson, is best known for generating huge returns betting against mortgage-related securities in 2007 and financial institutions in 2008. However, the firm late last year launched the Paulson Recovery Fund, which invests in financial-services firms that are looking to shore up weakened capital positions.

As 2009 began, Paulson was among a group of private-equity investors who acquired failed bank IndyMac from the Federal Deposit Insurance Corp., injecting $1.3 billion into the lender.

In the second quarter, Paulson’s hedge funds bought bank stocks including Bank of America, Goldman Sachs Group (GS 176.68, -0.08, -0.05%) and State Street Corp. (STT 40.40, -0.05, -0.12%) , according to securities filings.

via Paulson held big stake in Citi on Sept. 30 – MarketWatch.

John Paulson Doubles Bet on Cadbury | DealBook (NYtimes)

zyaada notes: Also do follow the Cadbury’s valuation stories at Advantage zyaada’s http://advantages.us

John Paulson, the hedge fund manager whose wagers against the United States housing market earned him billions last year, has doubled down on his bet on Cadbury, Bloomberg News reported.Mr. Paulson’s hedge fund, Paulson & Co., increased its stake in the British confectioner the same day that Cadbury rejected a $16.7 billion bid from Kraft Foods.According to a filing with Securities and Exchange Commission, Paulson & Co. now owns 28.5 million shares, or 2.08 percent, of Cadbury after buying 14.8 million shares at 759.59 pence each Monday.Mr. Paulson’s increased bet came as Kraft took its $16.7 billion bid for Cadbury directly to shareholders on Monday, after the board of the U.K. chocolatier rejected the offer as too low.Kraft declined to raise its bid, sticking with its original proposal from September, which offers 3 pounds, or $4.90, in cash and 0.2589 new Kraft shares for every Cadbury share. The offer values each Cadbury share at 717 pence, a 26 percent premium to the price before Kraft made its original proposal.The move by Mr. Paulson comes amid increased hedge fund interest in Cadbury. Eton Park Capital, for example, now holds 2.4 percent of the firm. However, Eton bought some of its shares at levels above 800 pence.

via John Paulson Doubles Bet on Cadbury – DealBook Blog – NYTimes.com.

Can Apple mark a Lifestyle return?

The Advantage zyaada analysis follows later

Here is the result and comparisons from Marketwatch.com

Apple Inc. on Monday reported a 46% increase in its fiscal fourth-quarter earnings as the company posted higher revenue than a year ago led by better-than-expected sales of iPhones, Mac computers and iPods.

Apple (AAPL 202.40, +12.54, +6.61%) said it earned $1.67 billion, or $1.82 a share, on revenue of $9.87 billion. During the same period a year ago, Apple earned $1.14 billion, or $1.26 a share, on $7.9 billion in sales. Apple’s results topped the estimates of analysts surveyed by Thomson Reuters, who had forecast the company to earn $1.42 a share on revenue of $9.2 billion. [picapp src=”9/4/2/2/Apple_Launches_Its_ea1d.jpg?adImageId=6245466&imageId=4962215″ width=”500″ height=”324″ /]

The initial reaction to Apple’s report was strong enough to send the company’s shares up more than $12, or as much as 6.5%, in after-hours trading to $202.20 after earlier rising $1.81 a share in the regular market session. The company sold 7.4 million iPhones during the quarter ended Sept. 26.

It was the first full quarter of sales for the iPhone 3GS, Apple’s latest version of its touchscreen smartphone that starts at $199. Analysts were expecting iPhone sales of 7 million, on average. Apple also said it sold more than 3 million Macs during the quarter, thanks in part to the back-to-school selling season. Mac shipments increased by 17% from the same period a year ago. Analysts had been expecting Mac sales of 2.8 million. During the quarter, Apple released Snow Leopard, the latest upgrade to its Mac operating system.

With the revenue recognition norms giving it an additional fillip on the balance sheet by Q1 2010 when more of the iPhone sales recovered from customer will reflect immediately and increase EPS, Apple has the right denoument to a hectic decade and a brilliant last 5 years since the launch of the iPod.

With iPhone 3G an unqualified success at an affordable price point, it may even be the trailblazer for the telcos that have spent the revolution since the 90s largely deep in the red.

Tech platforms seem to have stabilized for a successful cohabitation across the planet using iphones + portable music plus Kindle plus the Web 2.0 meaning that lifestyle customers are no longer being penalised with features that are outdated in just three months and uncompetitive pricing and packaging that brought AOL and Netscape down (and perhaps even Sony)

The only clouds for Apple being Windows 7.0 which is as comfy as the Snow Leopard and the apple users remain people who look for discontinuous change when they switch! The only answer to that probably would be for Apple to get more vocal sponsors in the coming Crowdsourcing for retail lifestyle..

[picapp src=”3/0/2/c/environmental_issues_8911.JPG?adImageId=6245570&imageId=6725321″ width=”234″ height=”139″ /]However, Coke kept falling for the third successive quarter with the largest volume drop. Despite lower revenues it however managed to post the same profit of 81 cents from $8.04 billion. Meanwhile, case volume grew 37% in India and 15% in China ( here)

Blackrock launches new Bundling? | FT.com

zyakaira notes: Just more old wine..I just prefer all markets on ECNs with afterhours trading..you mean they need a platform to sit and match trades internally before going to market! UGGGHH!

BlackRock, the asset manager poised to become the world’s largest money manager with $3,000bn under management, is preparing to create its own global trading platform – a move that could challenge the business at the heart of many Wall Street groups.

BlackRock plans to develop a “new world-class global trading platform across the firm”, according to an internal memo seen by The Financial Times. It has appointed Minder Cheng, who is joining BlackRock as part of its acquisition of Barclays Global Investors, to oversee its development.

The platform will “fully realise the cost efficiencies and trading opportunities across all asset classes as we become one of the largest trading operations in the world”, the memo states.

Once BlackRock’s acquisition of BGI is completed sometime in December, the group will have about $3,000bn in assets under management.

The plan is still in its early stages, but its outlines are already clear. If some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through Wall Street. BlackRock does not intend to take any fees for this service, since the whole point is to save its clients money, according to people familiar with the plan.

“Why pay such a large bid-offer spread?” another person familiar with the plan said, referring to the price gap between buyers and sellers. “The large volume gives BlackRock the opportunity to bundle trades.”

The plan will probably be first introduced for trading in stocks, where pricing is more transparent than in fixed income.

BlackRock executives have insisted that their plan is not meant to marginalise Wall Street, adding that the firm will still depend on banks to provide liquidity. But the new platform does serve as a sign that the buy side is increasingly flexing its muscles when it comes to paying fees to trade securities that often have very small margins and rely on large volumes to achieve profitability.

The high costs of developing new technology have hindered other attempts to develop such platforms. But BlackRock Solutions has been a pioneer in developing technology, which generally has been the province of the sell side. But now that is no longer an obstacle, these people add.

via FT.com / Companies / Financial Services – BlackRock to launch trading platform.

AIG’s Taiwan Life Unit

zyakaira notes: The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. So is Chinatrust still in the bidding?

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

AIG sells fast to make $80b

AIG (used earlier)AIG is in quite a turn having to sell most of its profitable Asian and other International Insurance and Investment Management Businesses ( also see here)

While it announced the division of its businesses into AIA + Alico in Life in Asia, Chartis for Property & Casualty and the Domestic US insurer, it has not gone much further. Till date it has sold the following:

1. Energy & Infrastructure Assets for $1.9 billion : A power generation plant operated by First Energy, a tax equity interest in a Texas wind farm and two lease equity interests in rail car portfolios. Earlier the AIG financial products unit sold an interest in Tenaska Marketing Ventures, its interest in two volumetric production payment transactions and its stake in three Spanish solar power plants

2. Hong Kong based Consumer Finance Unit for $627 million

3. AIG Systems Solution, its IT Outsourcing Unit sold to Mphasis (800 staff would have easily netted $35-50 million but not more than $75 million with all premium) which is likely small change of Rs 225 crores

4. It has earlier sold its Canadian Life subsidiary for $308 million and its Aircraftleasing business ILFC is expected to fetch less than $2.2 billion (assets worth $7 billion)

5. Its Life Insurance Premium Finance business was sold to Wintrust Financials (Ill.) for upto $740 million

According to Businessweek in a report published on Sept. 23, 2008, the Credit Suisse Group (CS) put an aftertax value on AIG’s assets at anywhere from $94 billion to $122 billion. The final tally will depend on how big a “distressed discount” it will face.

It is trying to sell the following for which deals are in process:

A. AIG Investments ( see article here) Earlier proposed to be bought by Franklin Templeton and Temasek, they are still being tracked by Crestview partners and Religare Enterprises of the erstwhile pharma major Ranbaxy. This sale will net at least $300 million, while AIG is likely holding out for $500 million for $80 billion AUM. AIG Investments has lot of fresh investments in Africa and Latin America (private Equity funds)

B.  The Global Real Estate Management Business with $12.4 billion in assets and $5.2 billion likely has suitors for $9 billion including the AIG and TARP advisors Blackstone(BX) and Blackrock. According to the dealcom, the Japanese HQ itself is worth $1 billion

C. The AIA and ALICO IPOs could net $25 billion including purchases by Benmosche’s erswhile Metlife, for which Benmosche will have to clear conflicts of interest ( by staying away from negotiations?) . Benmosche owns about 2.5 million diluted equity ( incl options ) of Metlife

D. Private Equity boutiques like Lightyear have shown interest in AIG advisors. Surprisingly, no such interest from the PE firms has come in AIG Global Investments. AIG ADvisors includes AIG Retirement Advisors ( Sage, FSC and Royal Alliance) which has lost 1 in 6 of their Advisors. As is the norm, most of the first bidders including Warburg Pincus have retreated, and the situation is very tense

E. Chartis carved out of all of AIG’s P&C business desires to sell a 20% stake through IPO

F. The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad.. also this unit (Nan Shan was out of cash earlier last year)

Though some of the initial deals have gone well, each of these deals seem likely to be pie in the sky w.r.t valuations and AIG faces a challenging task ahead.

On the other hand it has been stuck with proposals to sell $20 billion worth of AIA and ALICO Life Insurance in Asia, and another 20% in its restructured Chartis business (P&C) and is not likely to get a price that will pay off the expected debt out of the $80 billion outstanding. They have however made proprietary profits to pay off $2.67 billion in the 2nd Quarter, which is not much considering its global assets in life are $560 billion !!

references via thedeal.com