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Goldman Sachs Raises $5.5 Billion Private-Equity Fund (Update1)
www.bloomberg.com...
April 13 (Bloomberg) -- Goldman Sachs Group Inc., the sixth-biggest U.S. bank, raised a fund with about $5.5 billion in capital commitments to purchase private-equity assets on the secondary market.
The GS Vintage Fund V, Goldman Sachs’s fifth dedicated private-equity secondary fund, will acquire portfolios ranging from $1 million to more than $1 billion, the New York-based company said today in a statement.
Private-equity investors such as Harvard University are taking losses, and other schools are selling their future commitments to funds on the secondary market at discounts as high as 50 percent. In 2009, investors may dump as much as $130 billion in commitments, according to David De Weese, a New York- based general partner at Paul Capital Partners, which has $6.6 billion of assets under management.
About 9 percent of private-equity fund holders may sell their investments on the secondary market during the next two years, according to a survey released last month by Preqin, a London-based research firm. Private-equity assets worldwide total about $2.5 trillion, Preqin said.
The Goldman Sachs fund is the largest of its type, the Financial Times reported yesterday. JPMorgan Chase & Co., the second-biggest U.S. bank by assets, is also raising a secondary fund that’s pulled in about $500 million in the past few months, according to the report.
More at Link...
China Mulls New Stimulus to Boost Consumption, Bolster Recovery
www.bloomberg.com...
April 13 (Bloomberg) -- China’s government is considering additional stimulus measures to boost consumption and bolster growth just as the nation shows more signs of recovering.
The government will issue some “guideline” policies and continue to use fiscal and taxation measures to spur an expansion, the official China Securities Journal reported today, citing Gao Huiqing, a researcher at the State Information Center as saying on April 11. On the same day, Premier Wen Jiabao, said in an interview with state media that China will “closely” monitor changes in the domestic and world economy and “hammer out” new response plans when needed.
China has seen “better-than-expected” changes in the economy after the government rolled out its 4 trillion yuan ($585 billion) stimulus package, Wen said in the interview, citing stronger industrial production, expanding manufacturing index and rallying stock market. Still, Gao, affiliated with the National Development and Reform Commission, said such a recovery, which was spurred by a rebounding market and sales of property and cars, may be short-lived.
“While the stimulus is indeed having an effect on loan growth and some measures of economic activity, the trend decline in exports is unbroken,” said James McCormack, head of Asia sovereign ratings at Fitch Ratings in Hong Kong. “Chinese gross domestic product growth will remain below potential until the global economy recovers.”
China’s 2009 exports may shrink by as much 10 percent and risk the nation’s growth target of 8 percent, Zheng Xinli, the deputy policy research head of the ruling Chinese Communist Party, said at a conference on April 11. Growth probably slowed for the sixth quarter to 6.3 percent in the first quarter compared with a year earlier, according to a median estimate by 12 economists surveyed by Bloomberg News.
Is That Recovery We See?
by John Mauldin
April 10, 2009
Visit John's MySpace Page
In this issue:
Is That Recovery We See?
Those Wild and Crazy Analysts
The Shadow Inventory of Homes
Commercial Real Estate Starts a Long, Slow Slide
P/E Ratios Go Negative!
The Effect of Earnings Surprises
Corporate Earnings and Recovery in Recessions
The Implosion in Social Security
Copenhagen, London, Newport Beach, etc.
The market, we keep hearing and reading, is telling us that there is recovery around the corner. And pundits point to data that seems to suggest the worst is behind us. The leading economic indicators, while still down significantly, seem to be in the process of bottoming. There is a large amount of stimulus in the pipeline. Mark-to-market has been modified. Housing seems to be finding a bottom, if you look at the rise in sales from January. And so on.
In this week's letter, we look at what past recoveries have looked like in terms of corporate earnings; and we look at the continued slide in earnings on the S&P 500, which has a negative price-to-earnings ratio looming in future months (yes, that is not a typo, we have an unprecedented earnings multiple). We take a peek at housing and foreclosures. There is just so much bad news out there (like continued unemployment) that it just has to get better, doesn't it? This should make for an interesting letter.
Is That Recovery We See?
This week the market seemed to like financial stocks and was buoyed on news that Pulte Homes would buy Centex to create the largest US homebuilder. And with banks having some room to adjust their writedowns as mark-to-market is modified, the market saw significant increases in the financial sector. Everywhere I keep hearing the old saw that the market predicts a recovery about six months out, so won't we see a recovery in the fourth quarter of 2009?
If you look at earnings estimates for 2009, that is what is suggested. Bloomberg reports that profits at S&P 500 companies probably fell 38% on average in the first quarter. The stretch of quarterly declines is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.
Earnings may drop 31% in the second quarter and 18% in the next before gaining 74% in the last three months of the year, analysts predict. Banks are projected to account for all of the rebound in the final quarter. Without financial companies, the gain turns into a 5% decline, the data show.
The above estimates are based on operating earnings, not as-reported earnings. Long-time readers know that operating earnings are actually earnings before interest and Bad Stuff. As-reported earnings are what companies actually report on their tax reports, and as a gauge of profitability they are much more reliable. Before the mid-'90s the difference between operating and as-reported earnings was typically quite small. Then companies found they could play the market if they played games with their operating earnings.
Operating earnings typically do not take into account one-time, nonrecurring events. The number of items which get classified as "nonrecurring" has mushroomed to the point where projected operating earnings for 2009 are more than double the estimates of as-reported earnings. Operating earnings for 2008 were almost three times actual, or as-reported, earnings. We certainly seem to have entered an era of really bad one-time events, which just keep on coming and coming. As recently as 2006, there was less than a 10% difference between the two. In some quarters it was only 5%. A far cry from today's 100%-plus.
Those Wild and Crazy Analysts
Analysts, who as a group have been egregiously bad at predicting earnings of financial stocks for the last two years, would have us believe they are due for a large rise in the 4th quarter. Let's visit those assumptions for a few minutes.
They contend that much of the bad news in the subprime-loan and housing market has been written off. And one would have to admit that a lot has been; and with the relaxation of mark-to-market, there may indeed be some truth to that suggestion. But there are still some issues that remain for housing. Take a look at the graph below. (Not sure where it is from, as it was sent to me, but I have seen the same data elsewhere.) Notice that monthly mortgage-rate resets declined markedly in 2009 from 2008, but are expected to rise again in 2010 and 2011. There is still some heartburn in the mortgage market.
**chart goes here**
The Shadow Inventory of Homes
And foreclosures keep climbing, though some point to that fact that they seem to be leveling off. However, a strange thing is happening. We are seeing what is being called a "shadow inventory" of foreclosed homes.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage." (San Francisco Chronicle)
A Realty Trac survey found that only 30% of foreclosures were listed for sale in real estate listings like the MLS (Multiple Listing Service). Add in homes that people would like to sell but simply can't find buyers for, and must either hold or rent, and the unsold inventory numbers that are public are likely far below actual available homes.
Might some homes in foreclosure be held off the market because banks eventually want to negotiate with the homeowner? Possibly, but other surveys show that anywhere from 30-40% of homes in the foreclosure process in many areas are actually already vacant. There is no one with whom to negotiate.
Typically a foreclosed home sells within a few weeks, as banks take the first "reasonable" offer. But it normally takes about three months from foreclosure to when the home is put on the market -- it takes a few months to get a home ready. But surveys show it is taking a lot longer now, and many homes have not made it onto the market, even as more homes are being foreclosed each month.
The Chronicle suggests several factors may be at work. First, there is the "pig-in-the-python" problem. There are just so many homes that it is hard to get them onto the market and sold. Normally there are about 160,000 homes a year in foreclosure sales. We are now seeing 80,000 a month, or six times normal levels, and rising.
Second, lenders could be deferring sales to put off having to acknowledge the actual extent of their losses. "With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," one observer said.
Finally, banks may not want to flood the market with foreclosures, driving prices down even more. They are simply managing their assets so as to recover the most capital they can.
Given that the graph above says there will be more mortgage misery as large numbers of mortgages reset in the next two years, and given the unknowable nature of the losses, it is somewhat optimistic to think financial profits will rise by 74% in the fourth quarter. But it gets worse.
Commercial Real Estate Starts a Long, Slow Slide
We are now starting to see some real deterioration in traditional bank lending. Delinquencies on home equity loans are rising rapidly. The American Banking Association released a composite index of eight different types of consumer loans, and the delinquency rate on this 35-year-old composite jumped to a record high of 3.22%.
The above reflects 4th-quarter data. As unemployment is up 2% since then and is rising, it is more than reasonable to assume that we will see another record rise in delinquencies this quarter. With unemployment headed to over 10% and maybe 11% from today's 8.5%, delinquencies are likely to continue to rise for the entire year.
David Rosenberg reports that "The National Federation of Independent Business found in a poll that 28% of small firms said they had a line of credit or credit card limit cut back in the second half of last year; 69% stated they are facing worse terms. A new FICO study found that 11% of US consumers -- 22 million people -- have had their credit lines cut or accounts closed even though they have been paying their bills on time and retain a solid rating." This is certainly not good news for those who expect a positive 4th quarter. Cutting credit to small business, the engine of job growth in the US, is hardly a prescription for a growing economy.
Commercial mortgages are in trouble. S&P has warned they may cut ratings on $97 billion in commercial-mortgage asset-backed debt. The country's 10 biggest banks have $327.6 billion in commercial mortgages, according to regulatory filings. A projected tripling in the default rate would result in losses of about 7% of total unpaid balances, according to estimates from analysts at research firm Reis Inc. (Bloomberg)
I think, given the track record of the analysts who project a 74% rise in earnings for financial stocks in the 4th quarter of this year, that we should remain a tad skeptical. And speaking of earnings, let's go to the S&P web site and see how things are progressing.
But first, let's look at just how badly analysts blew it in estimating 2008 earnings. In the table below we see that as recently as October 15 they were estimating AS-REPORTED earnings to be $54, down from $92 when I first saw the 2008 estimates. There were only two months to go in 2008. So, what are the actual 2008 earnings? Down to $14.88!!!
**another chart**
More at Link...
Did Goldman Goose Oil?
www.forbes.com...
How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.
When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.
But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.
"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.
What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. "Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," says John Tucker, who is representing Kivisto.
What's known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data--and profited handsomely from Semgroup's fall. J. Aron was Semgroup's biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.
Hmmm...
Gross Raises U.S. Debt Holdings to Highest Since 2007 (Update1)
www.bloomberg.com...
April 13 (Bloomberg) -- Bill Gross, manager of Pacific Investment Management Co.’s $144 billion Total Return Fund, increased his holdings of U.S. government debt to 28 percent in March, the highest percentage in almost two years.
Pimco’s founder and co-chief investment officer boosted government debt holdings from 15 percent in February to the most since April 2007, according to the Newport Beach, California- based company’s Web site. The world’s biggest bond fund’s holdings of mortgage-backed securities dropped to 66 percent of total assets from 86 percent in February.
While the government debt category includes Treasuries, Gross has said that Pimco is not interested in buying the securities. In February, Gross said it was “incumbent” upon the Federal Reserve to buy Treasuries but that he wouldn’t follow the central bank’s lead.
The central bank said March 18 that it would buy up to $300 billion of U.S. debt in an effort to drive down consumer borrowing costs. The day after that announcement, Gross said in an interview on Bloomberg Television that the purchases won’t be enough to awaken the economy.
The Total Return Fund rose 4.8 percent in 2008, beating 93 percent of its peers, data compiled by Bloomberg show. The fund has returned 1.5 percent this year through March, according to Pimco data.
In January, Gross held a negative position in government debt securities such as Treasuries, debt issued by government- backed agencies such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank system or interest-rate derivatives.
Mark Porterfield, a Pimco spokesman, has said the firm doesn’t comment on fund holdings.
$77 billion more to bail out bankrupt GM?
www.dailyfinance.com...
Thanks to decades of mismanagement, General Motors Corp. (GM) is on the brink of bankruptcy. It has about six weeks to accept the outlines of a Treasury plan and fill in its blanks.
And GM will not simply be liquidated. Instead, $77 billion more in taxpayer money -- on top of the $13.4 billion it has already received -- will be needed for GM to die a good death and be reborn as a smaller company.
How will this work? Using a section 363 bankruptcy (about which I posted here), the good part of GM -- such as Chevrolet, GM's Chinese operations, and Cadillac -- will go into a new company in the next two weeks with the help of $7 billion in U.S. debt. And the bad part -- everything else -- will require $70 billion more in U.S. debt to cover GM's health care obligations and the liquidation of the factories making all of GM's other products.
Still unresolved in this plan is the fate of a $13.5 billion gap between GM's pension assets and its liabilities, as well as how much of a haircut the holders of $29 billion in GM bonds will be forced to take. Finally, there's the matter of whether this restructured GM will be able to attract any customers, who might be nervous about whether a bankrupt company can stand behind its warranties.
Meanwhile, there is wonderful news for Boston Consulting Group, which will get $5 million in fees to develop a business plan for GM. And S&P is earning its fees by announcing that GM and Chrysler are likely to default on their debt obligations. Too bad they didn't make that call a few years ago when it could have helped saved people from losing money.
No word on how the U.S. will get back the $90 billion will have lent GM to cover all its mistakes. And all the GM stockholders -- who have already lost 98 percent of their investment since Rick Wagoner took over -- will see that remaining two percent wiped out.
None...as in Nadda, Zip, Zilch...
Are the Fed's Unemployment Rate Forecasts Right?
seekingalpha.com...
Data published March 5 in the RGE Monitor (Nouriel Roubini) says “(U.S.) Private firms cut 697,000 jobs in Feb after cutting 614,000 jobs in Jan led by small and medium sized companies. Job losses in services (-359,000), manufacturing (-219,000), construction (-114,000)”, and that jobless claims and Automatic Data Processing numbers indicate total job losses in February will be in the 650,000-700,000 range, with unemployment rate reaching 8%.
The article also reports U.S. unemployment rate forecasts (year-end unless otherwise stated):
* RGE Monitor: 2009 - 9.9% and by Q3 2010 – 10.5%, with close to 4.5 million job losses in 2009;
* Morgan Stanley: 2009 – 10.0%;
* Goldman: 2009 - 9.5%, and 2010 – 10.0%;
* JP Morgan: 2009 - 8.7%
* Merrill: 2009 - 9.9%, and 2010 - 10.4%, with 3.0 million job losses in 2009 (of which well over 1/3 already have happened); and,
* The Federal Reserve (mid-point): 2009 - 8.7%, 2010 – 8.2%, and 2011 – 7.1.
As RGE Monitor puts it, “Intensifying job losses will put further pressure on consumer spending, raise mortgage, credit card and other debt defaults as households already face wealth loss from housing and stock markets”.
There is an obvious disconnect between what the Fed is predicting and what everyone else is predicting. Even a difference in the unemployment rate of 1% is ‘significant’. The simple average unemployment rate exiting 2009 of the five ‘private’ forecasts is 9.7%, as contrasted with the Fed’s 8.7% mid-point forecast. For 2010 the difference is 10.3% for the three ‘private’ forecasts noted above, while the Fed mid-point forecast is 8.2%. The ‘spread’ between the ‘private’ forecasts and the Fed midpoint forecast is double in 2010 than in 2009.
If the relationship of job losses and outputs continues, the U.S. economy has further to shrink and U.S. Government revenues will continue to decline while the U.S. Government proposes to spend more. This is a recipe for disaster.
Worse, the impact of unemployment is not confined to the revenues of the Federal government: state and local governments will be hit hard. It seems likely that people without jobs will default on mortgages and fail to pay their credit card obligations.
Unemployment levels are likely to determine how deep and how long this recession will last. So it is imperative that the Fed check its numbers and make policy based on reality rather what may be rosy assumptions.
Stock position: None.
Originally posted by Hx3_1963
More Skittles for the Masses please...
Are the Fed's Unemployment Rate Forecasts Right?
seekingalpha.com...
Unemployment levels are likely to determine how deep and how long this recession will last. So it is imperative that the Fed check its numbers and make policy based on reality rather what may be rosy assumptions.
OIL FUTURES: Crude Drops As IEA Revises Down Oil Demand
The IEA Friday cut its 2009 world oil demand forecast by 1 million barrels a day from earlier projections, saying the global recession could yet force further reductions to consumption.
Originally posted by GreenBicMan
reply to post by theWCH
im so tired of these Roubini, Whitney, Mayo comments etc... they are preying on their side of the short..
classic is CNBC and the MAYO dump a few days ago..
whatever those 3 say, run fast the other way
Originally posted by GreenBicMan
reply to post by RetinoidReceptor
lol
go back and see what these three have stated over the past 3 weeks..
"it could go higher.. but we see it down etc..."
yeah, great calls, m whitney is nothing but a CNBC whore, sorry to say, you can argue that all you want, but shorts in financials are fu*ed this week
Originally posted by RetinoidReceptor
Originally posted by GreenBicMan
reply to post by RetinoidReceptor
lol
go back and see what these three have stated over the past 3 weeks..
"it could go higher.. but we see it down etc..."
yeah, great calls, m whitney is nothing but a CNBC whore, sorry to say, you can argue that all you want, but shorts in financials are fu*ed this week
Meredith Whitney said to NOT be short financials during earnings because they will do better than expected. So what is your problem? From the looks of things, you probably weren't even in the markets when Lehman fell and CITI first cut its dividend because if you were you would agree with the statement that this market will melt down once again. Riding the trend is fine but don't be fooled just because equities are rallying while everything else has been mediocre. Equities are always overzealous until smacked down again.