chrism1962

52 Comments

    • Bailout 1.1 Passed. Will We Have to Go Back to the Well for v2.0? [view article]
      I was wondering whether the Government has taken into account how private equity/sovereign wealth funds can now invest in financials?

      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.       Oct 04 04:26 AM
    • Merrill Lynch: Unafraid of Contradictions [view article]
      If you look carefully at the MER 10Q (page 68) you will see that they financed $4.3B of the $4.4B Bloomberg asset sale. This is a moronic transaction, when you are trying to sell assets to raise capital.

      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.       Aug 07 08:01 AM
    • GE: Too Tired For Growth, But Yield's Attractive [view article]
      GE has about $57 Billion of its own real estate assets, but the 2nd Qtr press release lacked details to see what write downs had taken place, along with the lack of clarity on default rates in the finance divisions.

      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.       Jul 11 04:41 PM
    • Fed Credibility? [view article]
      The FED is seen to having a differing view from the rest of the world central banks. Effectively they are exporting inflation to the rest of the world by weakening the dollar.

      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.       Jun 29 08:59 AM
    • Don’t Worry About a Return to ‘70s Stagflation [view article]
      Is stagflation possible in a service dominated economy? .. of course it is.

      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.       Jun 24 12:34 PM
    • Valuing GE (It's Cheap) [view article]
      I agree that the share price is low at the moment ( but the low price may be justified) , however until I see how they have dealt with the almost $200 Billion of paper maturing in 2008, and at what cost?, I will keep away from GE.

      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       Jun 23 06:31 AM
    • Does Buy-and-Hold Work on Major Blue Chips? [view article]
      I don't believe that GE will give a 4% dividend over the next 10 years, they have structural problems to overcome. They are not an industrial Company with financial divisions, owing to their debt levels, they are more of a financial behemoth with an industrial arm.



      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       Jun 13 04:30 PM
    • NYT Smears David Einhorn, Again [view article]
      The media seems particularly poor on reporting on the financial sector. Most papers are saying that Lehman Bros has raised $6 Billion of Capital via a rights issue, bur have they?

      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       Jun 12 07:04 AM
    • Lehman Brothers Capital Raise 'Sobering' - Analyst [view article]
      I find it troubling that LEH has tried to hide its exposure for months, and has effectively lied in public statements. The main problem for LEH going forward will be trust and credibility.

      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.       Jun 11 02:19 AM
    • Making Sense of David Einhorn vs. Lehman Brothers [view article]
      I don't believe that short sellers would be able to make such claims ( and be believed) if there was no basis for truth. It is the lack of transparency of the LEH accounts that is fueling this speculation. It's time for LEH to put up or shut up ( show that your figures are not a fantasy). It did not help that the conference call and the Q10 had major differences, it just looks like LEH are trying to buy time until they are more liquid. Jun 06 06:12 AM
    • Is Lehman in the Midst of a Bear Stearns-like Meltdown? [view article]
      One thing to bear in mind with Lehman's, is that it can use its FED facility to swap illiquid AAA assets. However, how many of their assets will be AAA if the monolines are downgraded? Jun 05 06:23 AM
    • Will GE Drop Below $30? [view article]
      As you're probably aware I'm bearish on the near term prospects for GE. The financial divisions have further problems to come, and all other divisions ( with the exception of infrastructure) are also performing badly.

      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       Jun 01 01:04 PM
    • Should Citi Cut Its Dividend? [view article]
      The main reason that Exec's are loathe to cut the dividend is obvious, their options are related to the share price. Therefore if you cut the dividend, and the share value drops, their options are worth less. If they raise outside capital, they hope to avoid this consequence.

      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.       May 28 01:49 PM
    • Commercial Real Estate Headed the Way of Residential? [view article]
      Thank you for your comments,

      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.       May 28 06:54 AM
    • Why the US Markets Will Continue to Struggle [view article]
      Thank you for your comments,

      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       May 27 01:34 PM
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