chrism1962
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Latest Comments52 Comments
Bailout 1.1 Passed. Will We Have to Go Back to the Well for v2.0?
1) mark to market eased ( hide more crap under the carpet)
2) undetermined warrants for the Treasury, to dilute the financials equity values
3) Deal to make good all losses, in the event that the bailout loses money.
So if you are inclined to invest in preferred equity of a large bank, for a long term investment, how would you now value it?
This package has made the financials more opaque than ever, it looks likely that the only people that can recapitalize the banks, in these circumstances, is the Treasury. Therefore you can expect a further massive bailout plan in the new year.
Merrill Lynch: Unafraid of Contradictions
If they are so desperate as to carry out the Bloomberg transaction on these terms, what are they hiding from us regarding raising capital and the state of their balance sheet.
GE: Too Tired For Growth, But Yield's Attractive
I do think that talk of $20 is a bit on the low side, my fair value is around $24- $26, but in an poor market, it may overshoot to the downside slightly.
Regarding the spin off of the appliance/consumer lighting division, why make the shareholders suffer when you can't sell it a reasonable price?
1) The new entity will almost certainly lose the AAA rating that GE has.
2) There will probably be a lot of covenants attached regarding the use of the GE brand, as Philips or Haier may buy it in the future, and extend the brand to cover some of their other product ranges.
3) Points 1 and 2 will cause the value of the new entity to drop significantly.
Regarding the approximately $ 200 Billion of securities maturing in 2008, the debt will probably be rolled over, but at what price?
This must affect the bottom line as credit rates are tight and will certainly be above the price that the new loans are replacing.
GE certainly has problems to face in the 2nd half, but large write downs were always unlikely this Quarter, or the CEO would have become the ex- CEO, it only just made the estimate without them. The full year estimate is still extremely optimistic.
Fed Credibility?
The sovereign wealth funds and central banks have intimated that if the FED reduces interest rates, or weakens the dollar again, that they will stop buying T Bills Etc.
The ECB will raise interest rates to 4.25% this week (unless the FED tries to bring undue pressure to bear), which will weaken the dollar and probably cause the oil price to reach $150 pb.
It would be in everybody's interest for the FED to raise their rates by 0.25% to match the ECB rise, whereby the oil price would remain at around $140 pb.
The Qtr point rise in interest rates will hurt industry, and especially financials, but in the long term it should prove to be more beneficial to the overall world economy, if all central banks act with the same strategy.
The Bank for International Settlements meeting in Switzerland this week, may be stormy, hopefully a new consensus will be forthcoming.
Don’t Worry About a Return to ‘70s Stagflation
If anything it may be easier to cut payrolls from service jobs, as they do not tend to be linked to high capital cost equipment (factories). Reducing 2 or 3 burger flippers is easy, cashiering 10% of your bank staff (expensive, but an opportunity to remove the dead wood).
The only jobs safe in the short term would probably be the public sector, as the Government would not want to be seen to be influencing the voting intentions before an election.
Valuing GE (It's Cheap)
The problems with growth assumptions for GE, is that its recent growth has been based on the availability of cheap money, I cannot foresee this situation returning for at least 5 years.
Once I have seen the level of write downs over the next 2 quarters, I will be better informed as to whether its time to invest in GE, until then I will sit on cash.
Chris Marshall
Does Buy-and-Hold Work on Major Blue Chips?
The Infrastructure division is the only one performing well at present. But the high oil price, may be extremely difficult for them in the short term. Airlines are starting to mothball aircraft, and mothballed aircraft do not need spares, also options on new aircraft can disappear overnight. The same may happen on locomotives, if the higher running costs cannot be passed to the end user.
Yes, Solar, wind and (possibly nuclear) will help to offset the higher oil price, but margins will be hit in the near term.
The financial divisions are due to have some pretty hefty write downs, so rumours of a capital raising exercise are not to be discounted.
You can expect GE to divest itself of non-performing assets, for quite a while, to help rebuild its balance sheet. It is interesting to note that GE has almost $200 billion of Debt maturing THIS YEAR, yes they can probably roll it over, but the rates may be higher than they once were.
I hold no stock in GE, and have no interests to disclose. I just feel that GE may have split itself in to logical focused companies, if it wants to maintain high dividends.
Chris Marshall
NYT Smears David Einhorn, Again
The $2 Billion of preferential shares pay 8.75% per year, this is effectively a loan ( at a high interest rate) with the option to do a debt for equity swap at an agreed price. How is this capital?
Lehman are now in a hole because they lack credibility, previously via another capital raising exercise they used the funds to buy back their own shares, why?
Are the executives share options based on the share price?
Do they believe this is the best use of the capital, when their balance sheet was under severe strain?
The latest $4 Billion rights issue of common shares, does not discount the possibility of another share buyback ( maybe the shares that the execs own, could be part of this buyback? .... nobody knows what they are going to do with the capital ).
Another problem is that the senior management have made statements, in the not too distant past, which appear to misrepresent their company exposure. Why have the media (or even the SEC ) not hammered the company and the executives for these statements?
I do not believe that the media have a secret agenda, I just believe that they lack the required knowledge to base a judgement on the views of Mr Einhorn. Mr Einhorn has proved correct, much to the chagrin of the Wall St Analysts, who should have scrutinised Lehmans debt portfolio better.
Maybe they did scrutinise the debt portfolio, but did not want to rock the boat, we will probably never know, but their are many views on this subjkect currently, many negative.
Chris Marshall
Lehman Brothers Capital Raise 'Sobering' - Analyst
If they state that they have no further asset write downs, or that they do not need further capital injections, will the market believe them?
I believe that a change of management may be required, to help alleviate this problem.
I guess we'll know the answer over the next 2 qtr's, when further write downs are likely.
Making Sense of David Einhorn vs. Lehman Brothers
Is Lehman in the Midst of a Bear Stearns-like Meltdown?
Will GE Drop Below $30?
On the Infrastructure side wind power has an upside, Nuclear looks poor ( compared to Areva and Toshiba), Aero Engines looks problematic with high oil prices ( planes already being taken out of service), Locomotives look OK, Turbines look Neutral ( many players in the market).
In the short term problems with the Commercial Real Estate portfolio are likely ( write downs of up to $6 billion based on a 12% asset depreciation).
Loan rollovers are also a major problem if the tight credit markets do not improve.
Overall I expect another 3-6 quarters of poor figures, until the company is more focused. Expect further asset sales to help hide the asset depreciations. I expect a bottom at around $26, in the 4th quarter.
I have no interests to disclose in GE.
Chris Marshall
Should Citi Cut Its Dividend?
I think that this is another example of Exec's working in their own best interests, rather than the Company's.
A Bank having to lend money, or recapitalize, gives the impression that the Bank cannot use its depositors money as effectively as other institutions.
Commercial Real Estate Headed the Way of Residential?
cap rates in NY are around 5.5% currently, I expect the GM Tower cap rate is around 5.75% - 6.00% ( This is my informed guess ).
A 10% cap rate is great, but difficult to achieve, they tend to be accompanied by short time left on the leases, which means that you may be stuck with a vacant building.
I agree with John regarding the European Pension funds, they are really struggling (I'm based in the UK). If we use the 9% cap rate as a yard stick, and estimate the current cap rate as 6% (for ease), then Commercial Real Estate may be 50% over valued. Potentially this could mean $1.66 Billion of Asset write downs!
I don't believe that they will fall this far, but if recession really kicks in, don't discount the possibility either. Financials are still a one way short bet at this current time, regardless of what the FED and Treasury say.
Chris Marshall
PS: Regarding GE, Did you know that one credit card co in India has a default rate of 16%, so don't bank on emerging markets coming to the rescue of the international banks, they appear to be as self obsessed and stupid, as the rest of us.
Why the US Markets Will Continue to Struggle
Just to confirm I have no interests to disclose, but I would be short on Financials, Retail (except for Walmart), Property, Automobiles, Airlines and Housebuilding. I am neutral on Commodities and Energy, and long on Materials, and Industrials ( which export over 50% of product - and do not have 45% as Financials (GE)).
Chris Marshall