Beware the insurmountable barriers to entry which the retailing of organic tomatoes bestows on its business owner. We mentioned this situation whereby the Whole Foods (WFMI)/Wild Oats completed M&A was under fire since the "deal would harm consumers who shop at "premium natural and organic supermarkets", treating this business as if it were impenetrably walled off from the rest of the economy.

U.S. Circuit Court Judges Janice Brown and David Tatel "agreed that this Court has the power to grant relief despite the merger having already taken place." That could mean either stopping further efforts to eliminate Wild Oats as a separate brand or possibly ordering Whole Foods to reconstitute Wild Oats, re-creating the same level of competition that would exist today if the merger had not taken place. That process, known as "unscrambling the eggs," is a rarely used remedy in antitrust law.

In regards to the Macqarie/Puget (PSD) M&A, TheDeal says the timeline has passed for people to respond to the WUTC's approval, and now going forward any questions would only be amendments to the deal. Still, they speculate that the relatively wide spread could be in regards to worries that the original investors could get cold feet. It seems that if they had cold feet then they could have sought clarifications from the WUTC in order to delay the deal just recently.

The [WUTC] order is final regardless of whether clarifications or reconsiderations are requested, an attorney familiar with the review said. Any changes would be amendments.
That could be significant, because the merger agreement requires the buyers to close the deal within 15 business days of a final order. That timetable, however, remains murky because the merger agreement defines final order as a "final action" by the regulatory authority, "which has not been reversed, stayed, enjoined, set aside, annulled or suspended."

I've noticed a few pieces of good news starting to peek through, though still a lot of bad news out there. It makes me think about an interesting book I read, called Anatomy of the Bear. It's published by CLSA and looks at the four worst bear markets of the 20th century, this one not included. What I like about the book is that it doesn't hit you with all kinds of vague pronouncements and conjecture as to when "the cycle has turned". It's pretty fact-based, simply recounting what happened step by step, piecing together the story from old news clippings. It provides a reader with news in chronological order both leading up to and following market bottoms.

This means that the book is a useful read even if in the end you don't agree with the author on some points. Nevertheless, of all the information and analysis provided, I found the most interesting to be the author's conclusion that for each of the four bear markets analyzed, market bottoms did not come when bad news was at its peak. This sort of proves false the maxim that it's the best time to buy when things look the worst. The interesting thing that the author found is that actually, for the four bear markets analyzed, what marked a market bottom was when good news was increasing, yet was being still being heavily discounted by the market. So just as bad news can get heavily discounted and ignored towards peaks, the author shows how market bottoms can be when good news in regards to signs of a turnaround is already out there, but most simply don't believe it yet or just ignore it after being shell-shocked by the bear market.

The idea for this came via a friend, and then I looked a bit more into it. Basically the spread between inflation-protected US government bonds and standard US government bonds has become extremely small vs. history and even potentially nonsensical, which could be due to panic buying of US government bonds as money has sought a safe haven. Some investors might just have a mandate for plain bonds, rather than TIPs. Or perhaps there still isn't enough liquidity in the TIPs market to accommodate everyone.

As a reminder, TIPs are US govt-backed just like standard bonds, plus protect for inflation. The odd thing is that right now, 10-year TIPs have a yield of 2.2%, vs. US 10-year treasuries at 2.47%. This is only a 0.27% spread despite TIPS carrying inflation protection, and means that the standard treasuries are priced as if US inflation will average just 0.27% per year for the next 10 years, which seems highly unlikely. While this market oddity didn't just happen, it nevertheless still exists, thus there could be an interesting opportunity if one were to create a trade based on the expansion of this spread going forward. Something along the lines of short treasuries, long TIPs.

I am unintentionally Long TIPs and short Treasuries right now, but there is probably a better way to do it than I have unintentionally set up. A spreadsheet and some leverage could probably be one method, but given the times this is probably not the most popular way to explain a strategy! So perhaps just be unsophisticated and plain short treasuries.

You can take the analyst out of the brokerage, but you can't take the brokerage out of the analyst. What's happening, this Stalwart's take:

1. ...Obama's economic plan could include a large dose of tax cuts, perhaps totalling $300bn, rather than simply pumping out purely government expenditures. Which is probably a good thing and should make many Republicans happy.
2. Still, US steel companies see no reason to sit back and relax. Having seen the success of the automakers, US steelmakers are now clamoring for government support despite recent boom times.
3. As an aftershock from the commodities boom, some shipper groups are clamoring for re-regulation of U.S. railroads, complaining that recent price hikes were unfair. Rail is still probably a better deal than trucks, given customers are taking the price hikes, though lower oil could change this. US railroads were deregulated around 1980 after years of horrible performance. Now they finally have had the ability to modernize and create one of the most efficient rail shipping infrastructures in the world. Hopefully the twisted lesson learned from all this won't be to go back to the way it was.
4. In terms of economic indicators, the US manufacturing index fell to a 28 year low in December, and if the December rate were to persist for a full year, US GDP would drop 2.7%. Lets hope that's not quite the scenario which plays out. China isn't doing so well either, where manufacturing output fell (yes, economic indicators can actually go negative in high growth China) for the third straight month.
5. US auto sales in 2008 fell nearly 20% vs. 2007. And thus oddly enough... Japan could be experiencing a sort of pyrrhic victory since just as autos become the country's #1 export, we hit one of the worst auto slumps in recent memory. Cars seem so 20th century these days.
6. In Semiconductors, semi sales fell 10% YoT in November with memory hit especially hard. Probably related, there are reports of a spreading consumer electronics inventory glut. Music sales fell in 2008 for the 7th time in 8 years. Perhaps the CD will be one of this recession's fatalities.
7. In the deal space, Pfizer's (PFE) CEO has recently said that he is open to acquisitions. Let the speculation commence (continue?). Pharma is one place dealmaking isn't on life support, as buying companies these days is likely cheaper, and faster, than in-house R&D. Also, interesting article in regards to all the stakeholders [[DOW]]'s CEO is struggling to appease: Rohm & Haas (ROH), to complete the deal; shareholders, banks who are iffy on DOW's financials, post a potential ROH deal; the Kuwaitis, though they might now be out of the picture after canceling their JV.

Please bear with this recovering analyst.

I admit that this is a rather experimental post. Recenlty, I have done some work that looks at valuations on U.S. independent refiners and have reached several conclusions. One of these is that current share prices, despite their substantial declines in 2008, still price-in a historically strong industry environment going forward. Thus, they are not priced for hard times, as some might believe. The four companies I looked at, Valero (VLO), Tesoro (TSO), Frontier (FTO), and Holly (HOC), are actually still more expensive in terms of capacity valuation than they were at their own share price highs of 1998-2003, at least by my analysis.

I also believe that the strongest ideas are formed via sharing and confrontation. Therefore, I have attached a rather detailed PDF to this post, which looks at the calculated historical EV/Capacity valuations for four U.S. refiners. Perhaps something similar has already been said elsewhere, but I have a feeling that it is unlikely that the same perspective had already been applied, and therefore, I hope this piece adds some value to the discussion.

If one thing this financial crisis has exposed, it is that markets aren't as efficiently priced as half of modern financial theory presupposes. I am not referring to the housing crisis, where much has already been said. Rather, I am referring to stock, bond, and derivative markets for a wide range of companies. Market dislocation has resulted in some peculiar inefficiencies crossing this Stalwart's eye, some of which are very tangible.

One of the top U.S. business stories Monday involved a Credit Suisse analyst predicting that [[GM]] could go to zero in its restructuring process. Which would mean that over $2bn of equity value could be wiped out as debt restructuring could lead to current equity holders being diluted to oblivion. Of course in return for equity stakes, creditors would agree to haircuts on their principal.

In what has been an action-packed M&A arbitrage drama, Constellation Energy (CEG) has entered a definitive agreement with France's EDF group to sell a 50% stake in its nuclear generation and operation business, bidding a hasty au revoir to Buffett's MidAmerican Holdings (MDPWK.PK).

Constellation Energy Group said Wednesday that it will sell a 49.9% stake in its fleet of five nuclear reactors and other holdings to Electricité de France SA for $4.5 billion, derailing the pending $4.7 billion takeover by Warren Buffett's MidAmerican Energy Holdings.

US treasury rates are at all-time lows, and the shortest maturities are straddling zero percent interest. First, let us highlight that zero, or worse - negative interest rates, makes almost no sense and cannot be sustained. For this Stalwart, they are a sign of true panic without refrain to logic. Basically risk-averse investors might as well put their money under "the mattress". For financial institutions, by using the term "mattress", I mean other forms of government-insured financial accounts that earn more, or at least earn nothing. Heck, buy some corporate bonds backed by a rock-solid corporate with little leverage. They are probably more solvent than the US government and will pay you substantially more.

I suspect that what is happening is that a lot of institutions just want by-the-book safety and their mandates or systems make US government bonds the most practical way of doing this. It's a clear inefficiency which cannot last since companies can over time put their money under "the mattress", as described above, have the same risk-free investment profile (risk-free defined as assets backed by the US government, the world's current "risk-free" standard) and probably do better than short term government bond rates. They can also assume a tiny bit of risk with a solid corporate bond and earn substantially more. But many institutions probably see less potential blame in investing in US bonds and prefer safety with the rest of the herd. Still, current ST rates seem unlikely to last and point to substantial relative value in risk-taking assets.

Minyanville attacks deregulation vis-a-vis Bernie Madoff in the article "Deregulation to Blame for Madoff Fiasco". Now while chock full of rather illogical statements which might be better left ignored, a dissection of this article does highlight some misconceptions in regards to regulated vs. unregulated markets.

Madoff senior was charged with a single count of securities fraud. He was released from prison a few hours later after posting $10 million bail. If convicted, Madoff faces 20 years in prison and a fine of $5 million. His list of victims includes Steven Spielberg, New York Mets owner Fred Wilpon, and the European bank HSBC (HBC).