$$$ Another way to cheat at pricing II [Naked Shorts]

$$$ Blackstone Filing — Details on Comp, Part II [Banker’s Ball]

$$$ An Uncommon Combination of Beauty & Brains seeks Rare Renaissance Man— CEO, hedge fund manager or creative genius [Craigslist]

$$$ The iPhone on the Daily Show.

Call options of Marvell Technology have been trading at four times their usual volume today. Apple’s iPhone is widely rumored to use a wi-fi processor manufactured by a company Marvell bought last year. Shares of Marvell traded up 5.81% for the day, with nearly twice the average number of shares changing hands.
One analyst we spoke to said he did not believe that the surge trading volume in the options and shares indicated anything suspicious.

“Some people are definitely trading on hopes that the stock will get a bump once the teardown analysts release their reports on the iPhone,” the trader told us. (He asked to remain anonymous because he wasn’t authorized by his employer to speak on the iPhone.) “But I don’t think this pick-up is due to someone having inside information about what’s insider the iPhone.”

Marvell is still priced well-below the highs it hit in early 2006. Since then the company has faced an stock options scandal that lead to the resignation of its chief financial officer. Its most recent quarterly results came in below estimates.

But it hasn’t all been bad news for Marvell. Nasdaq announced this week that it was holding off suspending trading in Marvell’s while Nasdaq’s board reviewed allegations against the company. Marvell was recently added to the Russell 2000 index.

“There’s other news on this company besides the iPhone,” the trader told us. “But today’s interest is definitely trying to get in pre-teardown.”

Of course, it’s not just speculating traders who are excited about the iPhone. Nerds are excited too! Our reporter on the scene, Scott Bressler, says that there are approximately 362 people on line at the Apple store in Soho. At noon there were about 280, up from 68 at midnight.

(Photo: Waiting for tonight’s iPhone launch outside the Apple store by Scott Bressler).

Our more fashionable little sister site, Fashionista.com, noticed today that Esprit is on the hunt for a small, high-end brand to buy. Despite its powerful earnings and impressive performance of its stock—Bloomberg notes that it is the best performing stock on the Hang Seng index in ten-years—the company’s executives feel the brand lacks a little luxury appeal.

“Even though they sell loads of sportswear to Germany and the rest of Europe, they know they’ve got nothing on TopShop, H&M, or even The Gap in terms of style cred,” Fashionista writes. “Their hope is to find a company that makes Esprit look better to designers and fashion folk who might, eventually, pair with the line.”

The Fashionista readers have been chiming in with the names of potential targets. Luella and Diane von Furstenberg both seem to be favorites.

What Should Esprit Buy? [Fashionista]

Apple will release the iPhone tonight, but consumers and the media are unanimously apathetic. We just googled “iphone” and received five results, four of which referred to the International Paper Historians eg. “IPH, one group of paper historians…”

What little buzz there is for the phone seems confined to NYC, maybe just downtown. This picture of the Apple Store in Soho was taken by Scott Bressler.

[via The Big Picture]

CNBC reports that the SEC has asked Bear Stearns to turn over its documents about the investments made by its two hedge funds that nearly collapsed. Bear representatives, Masters o’ PR, have pointed out that inquiry is “informal” rather than full-fledged. But the only reason the investigation is being called “informal” is because Bear Stearns is cooperating, says the SEC. If they were to put up a fight regarding turning over the documents, a subpoena would be requested and the investigation would become “formal.”

Related: Jeff Lane, the guy Bear recruited from Lehman Brothers to replace Richard Marin as asset management chief, is “not known as a fixer of failed things.”

SEC Heightens Scrutiny Of Bear Stearns’ Hedge Funds [CNBC]

Last night we sent DealBreaker intern Scott Bressler to scout the scene at the Apple stores in NYC. In Soho he met the folks at the front of the line, who are broadcasting their standstill adventure at iPhone Launch TV. They plan to be the first to buy the iPhone, which they will auction on eBay for charity. (Scott made an appearance on their webcast last night, and we’ll be posting his pictures later today.)

So the bleeding hearts are selling the iPhone for charity. We’re sure that’s sweet of them. But what we want to do is get our hands on one of these babies and smash it.

That’s the only way we’re going to get real answers to the question that has Wall Street traders speculating, whispering and rumor-mongering today: Who makes the components of the iPhone? Some rumored parts makers are Marvell Technology, Broadcom, Samsung, Infineon Technologies, FoxConn Technology and Cambridge Silicon Radio. Apple won’t say who is manufacturing the guts of the new phone, and none of various players are commenting to the press.

But that hasn’t kept the stocks from moving. Marvell technology seems to be a favorite. The stock is up nearly 3.5% today, and just halfway through its trading day it has almost reached the three-month average for trading volume. Broadcom is down a bit, after rising earlier in the week. Infineon has been up and down all week, and is currently trading about where it started on Monday.

Clearly we need to learn who makes what inside the iPhone as soon as possible. And the only way to do it is to break the phone open.

The market expects Apple to sell as many as 1 to 2 million iPhones today.

Update: It looks like we’re not the only ones who want to break the iPhone.

Barbarians at the Gate was a great read but who’s up for a new book by the voice of our generation? By a day trader so great he turned $12,415 in Bar Mitzvah money into a fully audited pre-tax sum of $1.65 million, a writer so wonderful he just might trump Mergers and Acquisitions in book sales? Anyone not vigorously shaking his/her yes is a liar and a fool. Yes, friends, hedge fund guru Tim Sykes has a book. Unfortunately, he doesn’t have a publisher other than himself. And master of his own publicity as he is, he needs a little help. So we’ll be excerpting his memoir, “An American Hedge Fund: How I Made $2 Million As A Stock Operator & Created A Hedge Fund” whenever the mood strikes us, and if you like it, you can buy it (in October), and if you don’t (and/or have some edits), you can email Tim at Tim at timothysykes dot com.

“My high school teammates loved my wins but were put off by my intensity. As a result I didn’t get captain; probably because they knew I’d work them as hard as I worked myself.”

“I hated Tufts University from the start. The weather seemed colder than Connecticut. The girls were overwhelmingly unattractive.”

“I was used to having my own space. Lots of it. I’d drawn a forced triple, which meant that I shared a room with two roommates instead of just one. The room was barely meant for two people, let alone three, so it was extremely tight and crowded. Early on, I banded together with one of my roommates whom I liked and we planned to irritate the third roommate into leaving. We toyed with him on a daily basis using such petty tricks as subscribing his email address to pornographic websites and spraying his sheets and pillows with Windex. After a few weeks, our operation succeeded and he moved out. My roommate and I celebrated our newfound space by throwing a party for the dorm.”

Movie critic and head of the Bear Stearns the asset-management division that ran the two nearly-collapsed hedge funds, Richard Marin, has been replaced by Jeffrey Lane of Lehman Brothers Holdings. Though Marin will remain an “adviser” to Bear Stearns, he will now have considerably more time to blog.

Rich, Rich, Rich. What can we say? We warned you about comparing yourself to the Spartans. Sounds like you basically just met the Wall Street equivalent of the fate of King Leonidas.

Lane To Head Bear Stearns Asset Management [CNBC]
Bear Stearns Hires Lehman’s Lane as Head of Fund Unit [Bloomberg]

One of the great secrets of our success here at DealBreaker is our readership. We have the brightest, wittiest and best informed commenters on the web who help keep our recent comments page always fresh. And our tipsters—often people we have never met who reach out to us through email and phone calls—have helped us break stories and get the insider angle on stories where everyone else is simply re-writing the press release.

So this morning we’re happy to bring you new ways to send us tips. Starting today, you can now contact via instant messaging. Our AIM screenname is TheDealBreakers. But sometimes you need that extra-measure of security—or rather, to avoid those extra measures of security from the folks who might be monitoring your computer usage. So we also have a DealBreaker tips text message account. Send your text tips to 973-495-0177.

Of course you hope you will still email us at tips@dealbreaker.com or calls us at 212-334-1871 with your office gossip, bonus rumors, misbehaving banker snap shots, true-life stories of work gone bad, deal news, trading desk follies, market movements, promotions and firings, and whatever else happens to be on your mind. As always, you can rest assured that we will keep your identity confidential.

Carl Icahn and Hank Greenberg don’t play golf. And they don’t like executives who do. On Wednesday we went to the Wall Street Journal’s Deals and Dealmakers conference, and while everyone else was frantically scribbling down what Treasury Secretary Hank Paulson said about globalization—hint: he’s for it—we found ourselves more interested in the slightly less, well, earth moving details.

Golf—arguably the most popular pastime in America—didn’t score well with two headliners.

“I hate golf,” former AIG chairman Greenberg told the assembled crowd of investment bankers. “I play tennis. It doesn’t take long. Then I get back to work.”

After his talk we asked Greenberg about the popularity of golf among corporate executive.

“A lot of people like to get away from their work,” he said. “You have to wonder about whether they like what they’re doing.”

Icahn, the legendary corporate raider turned shareholder activist, was even more dismissive of golf. For him golf players symbolized the kind of clubby, chummy corporate executive he thinks is dragging down American business.

“These guys would rather play golf, slap each other on the back,” he said. “I want a guy running a company who sits in his tub at night thinking about the challenges he faces. The guy who can’t let it go. The focused guy.”

Yesterday we noted that Carl Icahn is not just short golf. He also tried to short Blackstone just after it’s IPO.

Here’s the latest BonusBumper chart. Thanks UBS, for driving down the median. Bonus numbers are starting to roll in, and while there isn’t any speculation on whether bonuses are higher than the amounts listed, there is speculation that they may be a tad lower. It’s also possible that the majority of bonuses have diverged so far from the top that no one knows what the real top is anymore. It doesn’t help that that top analyst is usually a complete pain in the arse and the one person in your group who’s mum about the extent of that obscene lump sum.

Comment or send any bonus info to: tips at dealbreaker dot com

What do you do when you’re trying to take the heat off your firm for the near-collapse of two hedge funds, and your last attempt to do so, leaking the fact that the guy in charge of the unit that ran the funds has a blog (hey, look, a blog!) backfired after a few people wondered aloud, “Why is this guy writing movie reviews?”? Let’s see, how about we get a guy to produce some pictures of John Mack dressed in drag? No? Okay, say someone could arrange for a hedge fund to lose $6 billion in two weeks? Is that something anybody would be interested in? No…okay…what about a profile of James Cayne that has all of the clichés about James Cayne that every article ever written about him includes, plus some new stuff about how he’s cutting back on red meat? Yes, this is the way to go.

Make sure the lede has the word ‘bellyache’ in it. Q. Who wants to read the article in the Journal that actually names the funds when we’ve got an exposé on Jimmy Cayne’s gastrointestinal problems? A. NO ONE. It is of the utmost importance that you mention JC’s affinity for cigars. Write something like “[Yadda, yadda, yadda], he said as he took a deep puff on a freshly lit Montecristo cigar.” This serves two purposes—it a) reinforces something everyone already knows about Cayne and b) is a nod to Charlie Gasparino’s assertion that “James Cayne has smoked more cigars than any CEO on Wall Street.”

Next up is cards. Forget about the Bear Stearns High Grade Structured Credit Strategies Enhanced Leveraged Fund, forget about the SEC, forget about Bear Stearns being a sty. James Cayne is a “world class bridge player who did not finish college.” Losses? What losses? James Cayne’s ascent “has been a result of a card player’s guile.” What is this subprime mess you speak of? James Cayne “didn’t go to Harvard Business School—he was a bridge bum.”

Now talk about Cayne cutting out “red wine, bacon and salmon for breakfast.” His “tan” thanks to weekends down the Shore. His “youthful demeanor.” The fact that he likes the musical stylings of a Norwegian pop star named Sissel and “any movie that stars Halle Berry.” Basically, anything you can get off his MySpace page is fair game.

Finally, ctrl-V “bridge-cigar” several times. How many is something of a personal choice but thirty is too few, sixty is probably too many. But no fewer than thirty, because Richard Marin felt the need to tell us not to see “Evan Almighty.”

Salvaging a Prudent Name [New York Times]

Soaring RIM shrugs off iPhone threat (Globe and Mail)
Well today is the day: iDay. That’s not a pathetic witticism. That’s literally what Apple is calling today, which is, to be perfectly honest, sort of silly. iDay? Whatever. We walked through the city for awhile yesterday evening, and although we passed a few AT&T Wireless corporate stores, we were disappointed to see nobody camped out. Guess you have to go to the Cube or the Soho shop for that. Meanwhile, one of the big expected losers from iPhone mania, Research-in-Motion, reported blowout earnings yesterday evening, sending shares soaring in after hours trading. That’s great, now you can sell your RIMM to buy your iPhone.

Bancroft Heir Pursues Alternative to Murdoch (WSJ)
So you know that the Murdoch-meter is really pushing the mercury, as the deal seems closer than ever to going through. But it’s not at 100%. A few folks inside the Bancroft clan are still actively pursuing alternatives. The Journal (hmm, you know, they seem really fixated on this topic), points to Leslie Hill (Hill?), a key Bancroft that’s been traveling up and down the east coast looking for an alternative suitor. It doesn’t really sound like she’s found much out there, although she actually wants to hear out MySpace co-founder Brad Greenspan, who holds a grudge ever since his company was sold for a song to News Corp. He made some dopey announcement last week about wanting to buy Dow Jones (just to stick a needle in Murdoch’s eye), though it didn’t seem particularly serious.

Western Digital to Buy Komag for $1 Billion in Cash (Bloomberg)
Hard drive maker Western Digital has agreed to buy out Komag for $1 billion in cash. There may be no other merger in history where the word ‘synergy’ is more apt. Western Digital makes the technology that writes data to the storage. Komag makes the part where the data is stores. Sounds like a match made in heaven.

FDA bans seafood from China (Chicago Tribune)
The hits just keep on coming for products from China. We’ve seen concerns about everything fro toy trains to toothpaste and pet food, and now the FDA has slapped a ban on certain seafood products from China. Of particular concern are farm-raised shrimp, catfish, eel, which appear to be grown using some drug that’s banned in us fish farms. Just as long as there’s still plenty of eel at the local sushi joint, the FDA can do whatever it wants.

$$$ The iPhone is too expensive? GET OUT. [Parks Associates via Paul Kedrosky]

$$$ The Crime of Losses [Going Private]

$$$ MBA finishing school [Banker’s Ball]

$$$Tomorrow is D-Day for the phone that does everything.

McClatchy still won’t comment on its mysterious share price jump since the market opened on Wednesday. That’s right, McClatchy won’t comment on the dearth of company news, the kind of dearth that drives a share price up more than 4% at day’s end. After retracting a bit this morning, McClatchy (NYSE: MNI) shares are up almost 1.5% today, nearing the midday peak of yesterday’s surge. Granted, McClatchy reached a new 52 week low at market close on Tuesday, and has to double (almost) to reach its 52 week high, but publishing stocks have been hammered for a variety of legitimate reasons. McClatchy’s sales are down 6% this year and ad revenue is down over 7%, like other publishers struggling to go digital.

The lead rumor is that McClatchy is planning to dump the rest of its stake in CareerBuilder. Still no word on who’s pumping, and who’s dumping?

Extra! Extra! McClatchy for sale? [Media Biz via CNN Money]

You know that ‘private’ blog written by Rich Marin, the head of the Bear Stearns group that ran the two hedge funds that have been causing all the trouble lately? Well, thanks to Google’s cache function, it’s a little less private.

The cached blog post gives us a peak inside the mindset at the embattled bank. Marin describes it as a “dog fight” but seems to revel in the combat. He uses a picture from the recent film 300—in which a small band of Spartans fights against the army of the Persian empire—to illustrate the post.

“This pretty much sums up my last two weeks trying to defend Sparta against the Persians hordes of Wall Street,” Marin writes. “Nothing like a good dog fight 24X7 for a few weeks to remind you why you chose the life you chose. The good news is that after two embattled weeks both I and my loyal staff are still standing to fight another day. If youwant details….pick up any WSJ for the past week and we were in the top three stories every day. It’s nice to know you can have an impact on the world….next time I’ll try to make it a slightly more positive impact.”

Marin might want to rethink his analogy. Thebattle of Thermopylae depicted in the film ended with the deaths of all of the Spartan warriors. We’re sure he hopes that the current crisis passes with fewer casualties.

Whim of Iron [Google Cache]

When it came out that Rupert Murdoch and Dow Jones had agreed on a way to preserve the Wall Street Journal’s editorial independence, we naively assumed that a compromise had been reached. In fact, the “agreement” consists of exactly what Murdoch wanted and more, the New York Times is reporting.

The details have not been finalized, but as it stands, News Corp will have the exclusive power to hire and fire top editors at the Journal. In addition, and this is the shocking part, the board of editors the Bancrofts want established as shield against Murdoch’s influence will not have veto power over any News Corp editorial appointees. Even the similar board at the Times of London, which the Bancrofts have cited as an example of too much News Corp influence, has this veto.

The Bancrofts still haven’t seen the agreement. Based on their past behavior, they probably won’t be happy about it.

In related news, some Wall Street Journal staffers are apparently taking half the day off work today to protest Murdoch’s bid. According to a Newspaper Guild statement from this morning,

“The Wall Street Journal’s long tradition of independence, which has been the hallmark of our news coverage for decades, is threatened today. We, along with hundreds of other Dow Jones employees represented by the Independent Association of Publishers’ Employees, want to demonstrate our conviction that the Journal’s editorial integrity depends on an owner committed to journalistic independence.”

Also, MySpace founder Brad Greenspan’s weird effort to block Murdoch by buying 25% of Dow Jones is apparently still happening. “We have put out a proposal to the family and the board, and I think they’re looking at it with great interest. We plan to meet with the board later this week – that’s a new development,” he told CNBC yesterday.

Dow Jones stock dropped slightly with the news, most likely out of fear that the Bancrofts won’t like the agreement the board reached with Murdoch. The meter has slipped 5%.

Tentative Dow Jones Sale Pact Said to Give Murdoch Power to Hire and Fire at The Journal [NYT]
A statement from Wall Street Journal reporters [Romenesko]
Dow Jones Bidder to Meet Board; News Corp. Deal Reached [CNBC]

The New York Stock Exchange has banned Michael Moore, saying he is not welcome in the exchange building on Wall Street, CNBC is reporting. The controversial film-maker was scheduled to be interviewed by CNBC’s Maria Bartiromo at 3 PM today.

Moore’s latest film “Sicko” is critical of the health care system in the United States, and he has been calling on investors, pension funds other institutional investors to divest from health insurance companies. Some publicly traded health insurance companies are listed on the New York Stock Exchange.

Last week a Lehman Brothers analyst wrote a client note describing the film as an attack on the U.S. health care system. “Michael Moore’s latest documentary, ‘Sicko,’ to be released June 29, might trigger resentment against insurers,” the note said. “The film directly aims at the U.S. health care system and the insurance industry and suggests a government-run system is the best alternative.”

Update: We’re told that Moore may now be unbanned. Still no word on what powerful force inside the exchange is issuing and possibly retracting these orders.

The Fed has kept the bank lending rate at 5.25% for the eighth straight meeting, in an announcement made at 2:15pm today. Economic growth appeared to moderate opposed to slow, which is better news than expected. The market today has been cautiously higher in anticipation of no surprises.

Stocks Inch Higher Ahead of Fed [Wall Street Journal]

We like our men in blue shirts and black pants, as opposed to ensembles reminiscent of “high-end gigolos populating the piazzetta in Capri.” So the news that the new uniform of (mostly) hedgies and (some) investment bankers alike is comprised of $700 cotton poplin trousers (Bottega Veneta), $250 flip-flops (Hermès) and $20,000 satchels in matte tobacco crocodile (Tod’s) was a bit disturbing to us, as we imagine it was to anyone else with eyes. But apparently, according to those designers, plus Ferragamo, Gucci, Versace, Valentino and more, you people enjoy looking like the male-moneyed equivalent of a Puerto Rican whore. They’re just complying.

A “diaphanous raincoat of parachute silk and side-belted blouson shirts” here, “boxing shorts and judo trousers, remade in matte satin and jewel colors” there. This is the new sartorial face of Third Point, RenTech, and ESL. The Bear Stearns bullpen.

Investment banker Euan Rellie was recently photographed wearing a “cropped jacket piped at the collar, lapel, hem and pocket; shirttails left hanging; bow tie” all by Thom Browne. Guy Trebay found the resulting ensemble in line with that of “the man hired by the caterers to make balloon animals.” Are these the people you want handling your money?

Looking Like a Billion Bucks [New York Times]

Marc Spilker has been named COO of the investment management division of Goldman Sachs (he will not be replacing Eric Schwartz, who recently announced he would be stepping down as co-head of asset management, as rumored earlier this week). Spilker will retain his role overseeing alternative-investments.

The latest email making the rounds through investment banking circles is a bridge burning farewell from a young banker.

“I have been fortunate enough to work with some absolutely interchangeable supervisors on a wide variety of seemingly identical projects - an invaluable lesson in overcoming daily tedium in overcoming daily tedium in overcoming daily tedium,” the email says.

It sounds like exactly the kind of bold declaration of independence that many young bankers dream of writing but almost never do. So many were applauding the JP Morgan banker whose name appears on the email as the author.

The only problem is that the banker on the email says he didn’t write it. What’s more, he still works at JP Morgan. It appears that the banker (whose name we’re redacting to protect the innocent) is the victim of a hoax, although it’s not clear who is responsible or why he has been singled out.

The email bears more than a family resemblance to a faux-farewell email message written by Upright Citizens Brigade regular and comedy writer Chris Kula. Kula’s original purely comedic farewell is here, although we have to dock him a few points for not having any fun banking scars or chiropractor bills to show for his faux angst.

Read the email that a JP Morgan banker didn’t send after the jump.

Separated at birth? Lloyd Blankfein, Goldman Sachs CEO; Pancho Villa, Leader of the Mexican Revolution; Snarf, Thundercats (Ho!)

“Um…why is my Grande Mocha (with extra whip) asking me to spell ‘sardoodledom’?” pretty much sums up Starbucks’ first film promotion venture.

Last year, Starbucks Entertainment (and here I thought Starbucks Entertainment is the laughter that ensues when the cashier asks for $5 in exchange for a cup of coffee) promoted the film “Akeelah and the Bee” for a cut of the film’s box-office proceeds. Akeelah, surprisingly void of sardoodledom (mechanically contrived plot structure or stereotyped, unrealistic characterization in drama (another word for melodrama)), was a flop, even for a documentary. The promotion campaign consisted of spelling bee words on cup sleeves and general barista harassment to go see the film (although baristas are surprisingly mum when it comes to giving a language of origin).

Undeterred by its first film promotion effort, Starbucks is promoting another film, “Arctic Tale,” an eco-fable about a walrus and polar bear that become special, special friends, and then drown after the ice caps melt (like Milo & Otis, if they were in Korea). The Paramount Classics and National Geographic Films release will be condescendingly explained to Starbucks patrons as a cautionary tale about global warming. The film is set to open in select theaters on July 25 and nationally on August 17.

(Here is the video of the poor soul who got stuck with “sardoodledom” in the National Spelling Bee, and nailed it)

Starbucks Sticks With Film-Promotion Plan [Wall Street Journal]

With regard to a House bill that would swap the much-loved 15% tax rate loophole for a staggering 35%, White House flak Tony Snow said Wednesday that Bushie will veto any and all attempts to increases taxes on hedge funds y buyout firms. Snow, never afraid to go where no one else will, noted that “This is not an administration that’s predisposed toward tax increases.” This bill is separate from the one aimed at Blackstone, Fortress, et. al., though similar in nature, and one that Treasury chief Hank Paulson believes would have “unintended consequences on capitalism,” namely that the mind-blowingly rich would have to let some of its hired help go.

Bush Attacks Tax [New York Post]

Remember that big party we got thrown out of? Apparently it devolved into something of a roast of Holly Peterson, the daughter of Blackstone Group co-founder Pete Peterson. At one point the “stone” himself joined in, saying his daughter is “the most egregious self-promoter in America.”

But the rich really are different. As they say, they have sex less often. (The jury is still out on whether they do it with fewer clothes on.) Here’s the New York Post’s Liz Smith writing about Holly and her husband’s intimacy issues.

Holly’s handsome husband, Rick Kimball, thanked his wife for keeping her maiden name and not putting his on her novel. He has been trying to keep people where he works from finding out who he is married to.

He noted that Holly told him when slaving over the book: “From here on in, it’s either dinner or sex, but not both!” Rick quipped that it was lonely to eat dinner by himself every night. Holly grabbed and kissed him in the middle of his remarks.

Last time we checked, Rick Kimball worked at Morgan StanleyGoldman Sachs.

New Party Starts For Paris [New York Post]

The London-listed $908mm Caliber Global Investment fund managed by Cambridge Place Investment Management LLP is liquidating its remaining assets and shutting down within the year. The culprit - a majority of the fund is invested in US mortgage backed securities.

Former Goldman bankers Martin Feingold and Robert Kramer founded Cambridge Place in 2002. The Caliber fund reported a $9mm Q2 loss and retained Lazard to review strategic initiatives. The strategy going forward is that there is no forward. It’s that kind of out of the box thinking that makes I-banks useful (thank you, that’ll be $3mm).

The Caliber shutdown follows another UK fund shakedown from subprime issues. Earlier this week, Queen’s Walk Investment reported a $91mm annual loss. The fund is managed by Cheyne Capital Management.

Cambridge Place’s Caliber Fund Shuts on Subprime Loss [Bloomberg]

Carl Icahn tried to short the stock of the Blackstone group immediately after its IPO, the billionaire “corporate raider” told an audience at a conference sponsored by the Wall Street Journal.

“I tried to borrow the stock but I couldn’t do it in time,” Icahn said.

After he spoke to the conference, Icahn asked reporters not to print the story of his attempt to short Blackstone. Although he had bashed executives and told the audience that private equity had peaked, Blackstone was one of the few companies Icahn discussed specifically.

UBS charged with running ‘hedge fund hotel’ (Reuters)
Regulators in Massachusetts have accused UBS of engaging in unethical practices to win business from hedge funds. Such activities included offers of free Red Sox tickets and cheap office space. We’re not really sure what the problem is. Presumably, UBS shareholders got the better end of the deals, or else UBS probably wouldn’t have entered into them. As for the hedge funds, it’s also hard to see how anyone got hurt. Maybe some shareholder could be upset that management is making decisions based on anything but alpha, but why should Massachusetts taxpayers be ponying up the legal bill to look out for the millionaires invested in the funds?

A New Genre on Wall St.: Bailout Blog (NYT)
Apparently, the head of the Bear Stearns unit that managed its troubled hedge funds, Richard Marin, has launched a blog. Part of it is details his experiences at the unit, while other entries are about movies that he’s seen. But here’s the thing. The blog appears to be password protected, which is lame-o. We can’t abide by that. So, Mr. Marin, we’d love it if you could see fit to shoot us a password. Or if anyone else knows its contents, we’d love to hear about it.

Hanesbrands plans to send more work overseas (Chicago Tribune)
Underwear maker Hanesbrands (Hanes) said that it will close a number of plants in the US, Mexico and the Dominican Republic, moving that production into even cheaper locales across Asia and Central America. When critics of globalization decry the “race to the bottom”, this is exactly what they’re talking about. When even Mexican workers aren’t immune from cost competition, it would seem that the country is running furiously on a treadmill. But it’s also worth asking whether Hanes is getting anywhere. Does it really make good business sense to set up factories and then move on anytime you think you can get a labor edge somewhere else? While it might sound good on conference calls, it comes off as grossly inefficient.

Alitalia Seeks Another Suitor After Aeroflot Withdraws (Dealbook)
The European state airlines have always been troubled in some sense or another, but by all accounts, Italy’s Alitalia has been the worst of the worst. Not surprisingly, given what we know about government in Italy, the airline has been, simply put, exceptionally poorly run. It’s been trying to unload the damn thing for a while, but it doesn’t seem to be doing well. Russian firm Aeroflot had been interested in purchasing, but it pulled out after claiming that it hadn’t been given access to critical operating data. Our bet: the papers were probably just lost. So, it’s looking for new suitors. Good luck on that.

$$$ Money - Get it while it’s Hot [Long or Short Capital]

$$$ Bear Stearns appoints somebody to do something about it’s minor HF problem [Reuters via NYT]

$$$ Classy, Cerebral Beauty seeks Cultured, Magnate Dom CEO or hedgie. Please write “Genuine Alpha Male” in the subject heading of your email. [Craigslist]

John and Timothy Rigas, the father and son who used Adelphia funds for such opulent treasures as 100 pairs of bedroom slippers and two $3000 Christmas trees were ordered to prison after a four-year appeal process. Adelphia Communications collapsed in 2002 when the firm disclosed $2.3bn in off-balance-sheet debt.

Both Rigases must report to the slammer on August 13, Timothy for twenty years and John, who is 82, for fifteen.

Adelphia founder Rigas and son told to report to prison in August for fraud convictions [Boston Herald]

Were you affected by the five-minute blackout on the Upper East Side? Share your experiences here.

With construction of its new JPMorganChase tower at WTC Site 5, Jamie Dimon can resume his rightful place at the top of the Greek Orthodox Church. Never one to be called anything but a strict constructionist, the belly of the DimonDome plans to rest over St. Nicholas Greek Orthodox Church and 165 feet over Liberty Park.

The building concept (pictured left), from Kohn Pederson Fox and The Real Estate, is being criticized as not only a good picnic spoiler but a bit of an eyesore, and may be pared back, according to architect Gene Kohn. The cantilever is a “beer belly” according to the New York Post and a “tower of darkness” according to Curbed.

Despite public opinion (the JPMorgan way!), the cantilever will exist at all costs, and contain JPMorgan’s trading floors. JPMorgan plans on doling out a few million to the Greeks to keep them quietly in the shadow of the 42 story tower and amidst the whooshing lament of the vortex of lost souls.

One upping JPMorgan is the new Goldman Sachs World Headquarters (pictured right) at 43 stories down the street at West Street between Vesey and Murray (Battery Park Site 26). The tower, which has several more lateral bumps than a measly lone cantilever, is already 8 stories high under construction and expected to open in 2009. If the JPMorgan tower is the “tower of darkness” then Goldman HQ is the tower of light, or at least greenery, as the building is being prided as a marvel in green-tech and earning all sorts of eco-friendly certifications.

WTC Chase Tower Will Block Church’s Heavens [Curbed via DealBook]
Goldman Sachs New World Headquarters (West and Vesey Streets) [Lower Manhattan.info]

Were you worried there wasn’t going to be an update to the pettiest story of all time? Worry no longer. Here’s a quick recap for those of you who haven’t been keeping score, which seems ridiculous to us since this story is about shrubs, but whatever, that’s your journey. Anyway, Goldman Sachs MD Marc Spilker wanted to widen his path to the beach at his house in the Hamptons. Unfortunately, his neighbor, Kynikos founder Jim Chanos had a problem with this, since his row of hedges would have to be taken out in order for Spilker’s family to be able to “maximize their beach enjoyment.” Spilker cited a deed that said he could have 15 feet, Chanos produced one that said otherwise. Then this week they went to court to negotiate; Spilker claimed to only want a few feet (i.e. 6-7), Chanos gave it to him and asked for it to be put in writing.

The (soon-to-be-promoted?) Goldman Sachs employee apparently then had a change of heart, re: abiding by the terms of the agreement, and yesterday afternoon decided he’d rip down the remaining hedges on Chanos’s property. Oh, and new neighbor Stevie Cohen, who shares the path to the beach, has thrown his support to Spilker.

After yesterday’s announcement that an “agreement” had been reached to secure the editorial independence of the Wall Street Journal, Rupert Murdoch said that he would not raise his current, $5bn bid for Dow Jones. “Everything is done. We are just waiting for a final approval of the Bancroft family. The final approval is in the next two, three week’s time or not at all,” Murdoch said today from Poland.

This, of course, doesn’t mean a modest bid increase is out of the question. One can hardly expect a perspicacious dealmaker like Rupe to tell Reuters, “I probably will up the offer, I just want to see if the Bancrofts will take the five billion first.”

It also seems that yesterday’s agreement on the Journal may have been prematurely announced. Parts of the deal remain, “sketchy or not yet written,” the New York Times is reporting. “The nuts and bolts are there, but not all the details,” a source involved in the negotiations said. Only a few of the Bancrofts, who have ultimate veto power over the deal, have been briefed on the still-unreleased Dow-NewsCorp. agreement.

Dow Jones Accord In Place, But Incomplete [Dealbook]
Murdoch: No plans to raise Dow Jones bid [Reuters]

For the first time ever, the words “former VP Dan Quayle and former Notre Dame football coach Lou Holtz,” are not the setup to a joke (punchline - because I just gave the lineman a potatoe). Instead Dan & Lou, and CEO of K2 Richard Heckmann, are planning to raise up to $500mm for a SPAC (Special Purpose Acquisition Company). Heckmann is planning on leaving K2 by August 1.

SPACs are publicly raised entities that provide a virtual blank check for a management company to make an acquisition. The acquisition doesn’t have to specified beforehand, although there are strict limits on when a target must be designated, and when a SPAC needs to spring into action (or else it would be the greatest scam ever). Why investors would want to give Quayle and Holtz a blank check is anyone’s guess. I guess a few companies could use more heart and less brains (Quayle plans to make “Rudy” a managing director).

The largest SPAC is Freedom Acquisition Holdings, which raised $528mm last Decemember. SPACs have raised $4.1bn in 33 IPOs this year, taking advantage of the blank check fervor created by the planned and executed IPOs of hedge and PE funds.

Quayle has been busy as chairman of the global investment unit at Cerberus since 1999 and Holtz has been saying nonsensical things on ESPN since retirement.

Quayle joins ‘blank check’ firm’s IPO [Los Angeles Times]

Smart people would rather work at Google than Goldman Sachs, Bloomberg reports today. One reason is that “Goldman’s current package is not enough to compete with West Coast IT companies.” But then again, if you work at Goldman, you get to play with Excel all day. It’s so hard to decide, we know. Having difficulty picking one G over the other? We’ve broken it down for you, after the jump.

Goldman Meets Match in Googleplex When Recruiting Graduates [Bloomberg]

JPMorgan has reversed the curse, and pulled into the top spot of the European I-Banking League Tables for the first half of 2007. JPMorgan was boosted by its strong performance in ECM, which commanded the second highest combined market share in ECM, trailing Deutsche Bank. The League Tables measure the combined market share of M&A, ECM and DCM. Citi was the only bank to finish in the top four in all three categories, and is 2nd in the League Table to JPMorgan.

Goldman, the Yankees of the financial world, remain much like the Yankees this year, sitting in a distant fifth place behind JPMorgan, Citi, UBS and Deutsche Bank (or 11 games out of first place). Goldman is quick to mention its top spot in European M&A, and high team OBP. Goldman has advised on $401bn worth of European transactions so far this year.

Spurred by megadeals like UniCredit/Capitalia, Enel & Acciona/Endesa, KKR/Alliance Boots, Reuters/Thomson and the ABN Amro bidding war between Barclays and RBS, deal volume in Europe has reached $1.3 trillion, and is expected to exceed last year’s record of $1.5 trillion.

JP Morgan leads in investment banking [Financial News via Dow Jones]

Citi is set to buy human replacement toy Automated Trading Desk for $700mm. Automated Trading Desk was born in 1988, fathered by two computer programmers and David Whitcomb, a finance prof at Rutgers. The firm makes money by being quick on the draw, apparently, using these crazy things called computers and algorithms. Even though the firm employs 100 people, it handled 6% of the trading volume in major US stock markets last year, processing over 200 million shares traded per day.

Citigroup In Talks To Buy Automated Trading Desk [Dow Jones via CNN Money]

Dutch Economist Henry Kat, profiled in a recent New Yorker feature, was skeptical that hedge funds produce alpha after 2 and 20 (or much higher for the average fund of funds (3 and 30) or funds run by a secret cabal of international quants and a chain smoker), which doesn’t make us feel that bad for thinking the same.

Kat was former head of the equity-derivatives desk at Bank of America but wasn’t down with ‘waking up at 5am, getting on the train and spending all day in the office for 25 years.’ This means that he’s not a complete nutjob, which is reassuring. Kat now settles for less than a hundred thousand pounds a year as a professor.

Kat followed through on his hedge fund skepticism by conducting two hedge fund related studies. The first, published in the June 2003 Journal of Financial and Quantitative Analysis, looked at the fee-adjusted returns of 77 funds from 1990-2000 in relation to returns generated by market benchmarks with similar risk profiles. The result - 72 of 77 funds failed to outperform the benchmark.

The second, posted online as a working paper in 2006, looked at more than 1,900 funds and generated a similar result. Only 18% of funds beat the designated benchmark, and the most successful funds had declining returns over time. The after-fee alpha was negative in the vast majority of cases.

How do hedge funds convince rich investors otherwise? For starters, they exaggerate, demonstrated in a 2005 paper by Malkiel and Saha (a Princeton Prof and a NY investment analyst). The study showed that funds are usually telling fish tales when talking about past performance and that hedge fund returns in aggregate are skewed by the mysterious disappearance of imploded funds from databases. Factoring dead or missing funds into the picture, Malkiel and Saha found that hedge funds made an average return of 9.32% from 1996-2003, instead of the 13.74% average return of funds in published databases. Another study (Brown, Goetzman and Liang) suggested that fund of fund fees negate what is generated in above market returns.

More after the jump…

Paris Hilton analogy count with regard to subprime/Bear Stearns/CDOs: 83

Who Made The Big Bets In Subprime Lending? [CNN Money]
When CDOs Trump Paris Hilton, There’s a Problem [Bloomberg]
Looking for Contagion in All the Wrong Places [PIMCO]

Blackstone closed at $30.75 yesterday, down 5.2% for the day and below its $31 initial offering on Friday; shares fell to $30.48 during pre-market trading. This is embarrassing. Nobody (here) knows for certain why life is being so god damn unfair to Stephen Schwarzman, 5’6”, but perhaps it could have to do with the Schwarz’s outrageous pay package, the nebulous amount of disclosure about the actual content of the Blackstone funds, or the fact that equity investors haven’t been duped into thinking they are LPs.

This also might have something to do with it:

One particularly risqué segment posed a personnel problem more pressing than a potential shunning at Shinnecock. “The kid, Dylan, was either going to hump a chair or hump the nanny’s leg,” Holly [Peterson, Peter’s daughter] said. “As a mother, I wasn’t going to ask my kids or my friends’ kids to do that.” Hence, the dwarf. Jay [Peterson, Peter’s nephew] recalled, “We thought, why we don’t hire a little person? That should get some good laughs.

For his part, and for Blackstone’s sake, the elder Peterson had the decency (and good sense) to appear embarrassed:

Pete Peterson has been trying to distance himself from the video, saying last week via e-mail that he would never have agreed to lend his apartment had he known that “The Manny” was going to be filmed there, rather than, as he thought, a taped interview of his daughter.”

Within Days, Share Price of Blackstone Is Below $31[New York Times]
Schwarzman Stake Sinks Like Blackstone [New York Post]
Making the Manny [New Yorker]

Testing Out the iPhone (WSJ)
Apple can stop holdings its breath. The iPhone has secured a good review from Walt Mossberg. Order is maintained in the universe. The Journal’s gadget columnist is arguably the most influential tech journalist there is. He even commands respect from the various tech and gadget blogs out there, which is really saying quite a lot. As for specifics, he wasn’t crazy about the speed, and he said it took awhile to learn the keyboard, but that he picked it up in a few days. Other than that, he thought it was a magnificent piece of consumer electronics After the report broke last night, Apple’s stock started moving up in after hours trading, a testament to his significance.

Chinese Shift Bank Savings Into Frothy Stock Market (WSJ)
Assets held in Chinese banks have been declining of late, as people move their savings from cash to stocks. Listen. Dear Chinese stock market: just freakin’ plunge already. Seriously, we’ve had nothing but ominous warning sign after ominous warning sign that something bad is going to happen. So just happen already. Watching the Chinese market is like watching the final episode of the Sopranos. Everything looks like foreshadowing and your convinced that someone’s going to get a bullet through their head any second now. If China were a play, it’d be a bad one, because as Chekhov said, if you’re going to bring a gun onstage, it better go off.

Jurors Are Expected to Get Conrad Black’s Case Today (NYT)
Jurors in the Conrad Black case are expected to start deliberating, in what’s become one of the biggest corporate crime cases since Enron — though we’ve still not found anyone who understands it (again, like Enron). For some reason, there doesn’t seem to be much trading on this one over at Intrade, so apologies for passing on news that can’t be monetized.

China and Dubai are coming…together (FT Alphaville)
China and Dubai are set to establish a more formal relationship to partner on investments in global assets. Heretofore, China and Dubai have always been linked, but only metaphysically. As in, they’re both part of this new club of money that the US isn’t really a member of. Sure, some US business and businessmen are doing quite well there, but on the whole, they represent a distinct alternative. So now the metaphysical is turning to the physical, and we can expect some buyout deals from the pair.

$$$ Deals: Private Equity Making Very Public News

In our M&A roundup for the week ending June 22, PE accounts for two-thirds of all deals, bringing buyouts up to nearly 38% for the full year. [CFO.com]

$$$ How Your iPhone News Gets ‘Fair and Balanced’ [Gizmodo]

$$$ The Pmarca Guide to Big Companies, part 1: Turnaround! [Huffington Post]

$$$ Buffett to provide enertainment at Clinton dinner [Financial Times]

$$$ Steven Cohen Gets His House (Almost) at the Beach [DealBook]

$$$ The Contraption II Video [Baynham & Tyers]

We were so busy bringing you the news that the board of Dow Jones & Company and News Corp have agreed in principle on a plan to protect the editorial independence of the Wall Street Journal (apparently no one cares about Barron’s), that we neglected to update the Murdoch Meter.

Contrary to the suspicions of some, the meter isn’t set by the arbitrary whims of the DealBreaker editors and reports. It’s set by the interns.

Just kidding. We employ a complex formula employing market variables to distill the meter’s current standing. Without going into the details of our secret formula, we’ll give you the outlines. We take the current share price compare it to Murdoch’s offer, and discount for information we think may not yet be fully digested by the market. Right now the Meter tells us that Murdoch has about a 95% chance of acquiring Dow Jones. (In case you need a more recently updated version, you can now click here.)

By the way, the deal is not quite done. Although the Dow Jones board, which includes representatives of the Bancroft family, may have more or less reached an agreement with Murdoch, the family has been surprisingly fractious and unpredictable through this process. It’s not clear that any attempt has been made to poll Bancroft family members on the proposal. Most likely, they haven’t even seen the details yet.

What’s more, the Wall Street Journal reports that there are still “open items” that remain. In our experience, these small “open items” that get left until the last minute either get swept away or become DealBreakers. Sometimes they remain open because nobody could be bothered to deal with the small things. After hour upon hour in a conference room, when the only thing left to drink is diet Sprite and all the cookies are raisin granola, you’re hardly in the mood to debate the eye-care plan for executive assistants. But sometimes those things end up mattering to someone who matters, or cost more than anyone imagined. We’ve walked back into conference rooms the day after to discover that our small “open items” list—usually kept on a legal pad or a laptop by the most junior person in the room—has become a list of DealBreakers. Beware the open items.

Update: Some are wondering whether this whole process is a farce. Gary Weiss writes of the agreement to protect the editorial independence, “I think any such agreements aren’t worth the paper they’re written on, but then again I’m cynical.”

Dow Jones, News Corp. Agree On Set of Editorial Protections [Wall Street Journal]

After the Paul Wolfowitz fiasco last month, the World Bank board unanimously approved Robert Zoellick as the bank’s new president yesterday. Zoellick, a current Goldman executive and former deputy secretary of state, has adopted an anti-corruption platform in response to the decade-long charges of fraud, bribery and general sleaze against the institution.

Weirdo-face aside, Zoellick’s appointment has faced very little resistance. The Times wrote, “Think how much better it would have been if President Bush had simply named Robert Zoellick to lead the World Bank two years ago instead of putting the bank, his administration and the world through the unnecessary and embarrassing Paul Wolfowitz ordeal.”

Zoellick will start his new job on Sunday.

Zoellick Wins Approval As World Bank President [Wall Street Journal]

Goldman Sachs’s co-head of asset management, Eric Schwartz, has announced that he will step down from his day job this summer, after 23 years with the bank. Under Schwartz’s tutelage, the asset-management unit grew to a record $758 billion, more than double the amount it handled when he became co-head (with Peter Kraus) in 2003. Rumored to be promoted to the soon-to-be vacant position? The man with no respect for the sanctity of another man’s hedge, Marc Spilker, who currently oversees Goldman’s alternative-investments unit.

In other news, James Metcalfe is leaving his post as head of power mergers and acquisitions at Lehman Brothers to become global head of power banking at UBS. Lehman posted an ad on Craigslist looking for someone with “a good head for numbers and lack of care for shrubbery” just this morning.

Goldman’s Schwartz, Co-Head of Fund Management, to Step Down [Bloomberg]

Much like the record bearishness of equity research analysts, the fact that investment newsletter editors are considerably more bearish than they have been in the last couple of years may be a sure sign that the market still has legs. Evidence, from the New York Times:

The Hulbert Financial Digest, which has been tracking the investment newsletter industry since 1980, has found that the stock market performs far better, on average, after periods when newsletters are very bearish than when they are quite bullish.

The theory is that market tops exist when the predominant sentiment amongst investors is bullish, due to the nature of investors to pass on current trends as “predictions.” Since the bears are circling, the top may be far off. Today, the average short term investor newsletter newsletter recommends equity exposure of just 30%, down from recommendations of 71% 8 months ago.

There have been fewer bear sightings in circles of economists, where the general outlook is upbeat. The few polar bears that are in the mix are adamant that the economy is due for a tumble, however. The Wall Street Journal highlights one of its most historically accurate economic forecasters (also one of the most historically inaccurate in off-years), James Smith of Parsec Financial Advisors. Smith contradicts the consensus inflation adjusted GDP growth estimate of 3% in Q2 of this year and between 2% - 3% for the remainder of the year, thinking that GDP growth will shrink to almost 0% before rebounding in Q4 to 5%.

Are the GDP growth predictions of economists in the ballpark when compared to actual GDP growth? The Wall Street Journal looks at economist consensus forecasts of annualized GDP growth and shows that economists were off most in the late bubble and after the crash (1998-2002). The chart also demonstrates that the consensus forecast is pretty much always between 2% - 4%, which makes sense, since a consensus estimate will temper the extreme optimists and pessimists. Basically economists are spitting out something close to the historical average GDP growth in aggregate, which isn’t necessarily a good predictor of anything, especially in the last 10 years.

The Crowd Is Restless, but Maybe That’s a Good Sign [New York Times]
In a Sea of Optimism, Why Some Forecasters Warn of Recession [Wall Street Journal]

* 3 Paris Hilton name-checks

* “Our prim remembrance of Gidget going to Hawaii and hanging out with the beach boys seems to have been replaced in this case with an image of Heidi Fleiss setting up a floating brothel in Beverly Hills.”

* “AAA? You wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a ‘tramp stamp.’ Many of these good looking girls are not high-class assets worth 100 cents on the dollar.”

* “I kid the Fed Chairman” jokes.

* Pretending (?) not to know who runs Bear Stearns

* Charts

Looking for Contagion in All the Wrong Places [PIMCO]

CDOs in `Hooker Heels’ Fool Moody’s, S&P, Gross Says [Bloomberg]

News Corp. and Dow Jones have agreed on a plan to protect the editorial independence of the Wall Street Journal, Reuters is reporting. The Bancroft family, which controls 64% of Dow Jones shares, is currently being briefed on the agreement and has yet to approve.

The Financial Times reported last night that a Dow-Murdoch deal was close at hand after contentious bargaining by both sides yesterday and over the weekend.

The content of the agreement has not been released, but will likely fall somewhere between Murdoch’s arrangement with the Times of London and the initial proposal from Dow Jones that sought to create an autonomous, Bancroft-appointed board to hire the Journal’s publisher, executive editors and wire chiefs.

If this agreement is accepted by the Bancrofts, the talks will likely move to pricing. Currently, Murdoch is offering $60 per share ($5bn) with conflicting reports as to his willingness to increase the offer. If NewsCorp. and the Bancrofts can agree, it is likely that a deal will not be announced until at least next week.

Dow Jones, News Corp. Agree on Editorial Structure: Reuters [Reuters via CNBC]
Murdoch makes progress on WSJ [Financial Times]

Boys—I would like to introduce you to a man you should be watching, studying, stalking and taking copious notes on, for he is your lord and savior. Emulate this man and you will go far in life. Don’t emulate this man and you will fail at everything you do.

Who is this beacon of light in a world cast in darkness? His name is John Ivers, he’s a 42 year-old self-employed stock trader (AKA the ghost of Tim Sykes’s future), and he just wants his summer share. Obviously, there are people who want to stand in the way of Ivers’s happiness, namely his 25 year-old investment banker girlfriend, but when you’re John Ivers, you don’t let 25 year-old girlfriends who want to get in on your 20-person summer house in Amagansett tell you what to do—you tell them (her) what you’re going to do.

You say, “Listen, Toots, I’ve been coming to the Hamptons as a single guy since before you grew breasts (John’s been in 14 houses). Now, I don’t have a problem continuing seeing your breasts, but in the city, k? When I come to the Hamptons I come alone. If I wake up one morning and want to sleep with one of my housemates, I do it. If I go out one night, and run into one of my ex-girlfriends, perhaps the one from three summers ago, who wears slender madras shorts and likes to watch me from a pebbled yard nearby, or the one from four years ago, who wears jeans and reminds me of what it was like to be 38, I do her. If I want to eat an $80 lobster roll by myself on the beach without anyone breathing down my neck and asking me ‘Where’s this going?’ I do it. So there’s not so much room for a girlfriend in that equation. Also, you know I’m in a band called Hot Lava, and rock stars don’t have girlfriends, they have groupies! You’ve seen the messages they leave me on Hot Lava’s Myspace page.”

When you’re John Ivers, 42, you wear flip-flops and Ray-Bans and a typical night would be something along the lines of:

A friend’s engagement party until around 10 p.m., a party at a house in Amagansett run by a “group of girls” until midnight, a gig by the band Booga Sugar at the nightclub Stephen Talkhouse until 3 a.m. or so, and then an after-party until near sunrise back at his place.

You’re not a pathetic aging frat boy who thinks nostalgically back to the nights of rohypnol cocktails and paddle slaps, ‘cause you’re still living the dream. You can’t believe those guys you went to college with are already in their forties, having kids and letting their girlfriends come to their summer houses—losers!

One summer stay in the Rental o’ Rapture will set you back about $3,200. Some skeptismos in the group might say something about it being lame for a person that age not to have (or, at the very least, rent) his own place, or remark that perhaps your day trading isn’t going so well, but those people just don’t get it (and were probably in DTD).

When Boys of Summer Linger Till Autumn [New York Times]

CNBC and the Financial Times are reporting, more to come.

It’s a tale that’s now becoming all two familiar. Aggressive prosecutors zealously pursue a case that probably should never have been brought, using every dirty trick in the government’s book (and a few that turn out to not be in the book at all), and refuse to let go even after the case has become a public embarrassment.
We’re not talking about the Duke phony-rape case here. In North Carolina at least they have the decency to disbar and fire their prosecutor-gone-wild.

But things are different if you work for the Justice Department. Being a federale means never having to say you are sorry. And far from apologizing to the 16 former KPMG partners who face trumped-up charges for tax evasion, the prosecutors in the case are mounting a daring legal gambit in an attempt to save their case from the dustbin of history.

This requires a bit of explanation. At first glance, it looks as if the prosecutors are admitting defeat. Yesterday the Wall Street Journal reported that the prosecutors asked the judge to dismiss the case against the defendants on the grounds that the government had violated their rights to defense of counsel. But, in fact, this is part of a strategy to revive the case against the former KPMG partners.

When the case was brought against the partners, the government intimidated KPMG into refusing to pay for their legal fees. The deal was that if KPMG refused to pay the fees for their employees, the firm would be treated as a cooperating witness in the case. If they paid the legal fees, the firm faced might more serious charges itself. It was an offer they couldn’t refuse.

Prosecutors hoped that the defendants would plead guilty rather than face near certain bankruptcy from the costs of defending themselves. Surprisingly, most of the defendants refused. It’s a rare defendant who is willing to take on the unlimited resources of the federal government and risk financial ruin as the cost of acquittal. But the KPMG partners were made of sterner stuff, and apparently were convinced of their own innocence.

Judge Lewis Kaplan ruled last year that the governments tactics had violated the defendants’ constitutional rights. The government has since dropped the tactic from its approved methods for bringing cases against white collar criminal defendants. But prosecutors refused to drop the case, and all attempts to cure the constitutional violations through procedural fixes have failed.

Now the prosecutors have asked the judge to dismiss the case. But they’ve already announced that they plan is to appeal the judge’s dismissal, as well as his earlier finding of constitutional violations, once it is dismissed. Why move to dismiss and then appeal? Apparently, the case cannot be appealed by the prosecutors until it is dismissed by the judge.

So the extraordinary and twisted case that began with accounting scandals in the late nineties—and somehow morphed from deceiving private shareholders to avoiding government taxes—marches on. Like some kind of horror movie killer that just…won’t…die.

Update: The New York Times headline in this story is truly noxious. “Prosecutors Invite a Dismissal in KPMG Tax-Shelter Case, Burdened by Technicalities” some editor of the Times wrote. When was the last time the New York Times editors dismissed constitutional violations as technicalities? This was the language used by law-and-order types a couple of three decades ago when the courts starting throwing out criminal convictions for minor mistakes in Miranda warnings (“You have the right to remain silent…” etc.) Here the government set out to effectively deprive the accused the financial means to defend themselves, and they call it a technicality.

Further Update: As is often the case, the business blog of the Times does a better job than the old gray lady herself on the case. They convey quickly and immediately the strategy of the prosecutors. “Federal prosecutors trying to bolster their faltering tax-shelter investigation have essentially dared a federal judge to dismiss charges against former employees of the accounting firm KPMG so that they can appeal the ruling and get the case moving again,” DealBook writes. “But there is a catch: Prosecutors also said in the filing that they did not believe any of the defendants’ rights had been violated — and that they would appeal any such dismissal. A hearing has been scheduled for Monday.”

Prosecutors Urge Dismissal Of KPMG Indictments [Wall Street Journal]
Prosecutors Invite a Dismissal in KPMG Tax-Shelter Case, Burdened by Technicalities [The New York Times]

The SEC has added links on its website to the pertinent portion of every company filing that mentions business conducted with U.S. designated “State Sponsors of Terrorism.” The five winning countries are Cuba, Iran, North Korea, Sudan and Syria. The companies are mostly banks, financial services or natural resource companies, with a sprinkling of some consumer products companies and biotech.

The only recognizable outliers are Xerox (in the Sudan, as all good genocidal propaganda, or at least “missing” posters need mass production), the Four Seasons (in Syria, for power lunch) and Nokia is the mobile carrier of choice for terrorists (with business in Iran, Sudan and Syria).

Remarkably, there are five companies that mention business in North Korea: Biotech Holdings Ltd, China Yuchai International Ltd, Credit Suisse Group Ltd, HSBC Holdings PLC and Siemens Aktiengesellschaft (Gesundheit).

Here’s an excerpt from Credit Suisse’s 20-F:

As part of its continuing evaluation of risk, in the first quarter of 2006, the Group determined to limit the amount of business with counterparties in, or directly relating to, Cuba, Iran, Myanmar, North Korea, Sudan and Syria. The Group has decided that it will not enter into new relationships with clients from these countries and will end all existing relationships with corporate clients and most private banking clients in these countries. Some designated relationships with private banking clients in these countries will be maintained subject to restrictions, including the centralization of the private banking relationship within Credit Suisse in Switzerland.

Translation: No more Swiss bank accounts for new or up and coming terrorists, although the really rich established ones can stick around, and have free checking.

Here, a nugget from HSBC’s 20-F:

HSBC takes its obligations to prevent money laundering and terrorist financing very seriously. HSBC has policies, procedures and training intended to ensure that its employees know and understand HSBC’s criteria for when a client relationship or business should be evaluated as higher risk. As part of its continuing evaluation of risk, HSBC monitors activities relating to Cuba, Iran, Myanmar, North Korea, Sudan and Syria. HSBC’s business activities include correspondent banking services to banks located in some of these countries and private banking services for nationals of, and clients domiciled in, some of the above countries. The Group has a small representative office in Tehran, Iran.

Translation: If we see anything, we’ll call you (quick Zarqawi, the back door is this way). We monitor this stuff we swear (are we still liable if we don’t know about our client’s activities?).

Then there’s China Yuchai International’s 20-F, which, I’m paraphrasing, says that the SEC sent us a letter and…um…yeah…we’ll get right on that.

SEC Adds Software Tool for Investors Seeking Information on Companies’ Activities in Countries Known to Sponsor Terrorism [SEC]

Apparently, social networking hinges on an individual’s quest for freedom (MySpace) and civilization’s demand for conformity (Facebook).

According to a project by tech researcher danah boyd, who is so down with dotcoms that she legally ee cumminized her name, Facebook is for college preps and MySpace is for Latin Kings, or at least economically depressed, goth-wearing, gang-banging, extreme bass-playing meth addicts.

This shouldn’t be that much of a surprise, since Facebook started out at Harvard, then migrated to other Ivy League schools (and MIT), where the site is currently most entrenched as a percentage of the student body (we completely made that statistic up, but suspect it’s true, especially at Harvard).

Class differences are also becoming apparent, with the proletariat more MySpace leaning (also no surprise with Facebook’s Ivy League bent). Almost half of Facebook (which is capitalized in the media due to the media’s giant hard-on for the site but not on the site itself) users have a household income over $75k while less than 40% of MySpace users do (those numbers are from Comscore).

A problem with any research involving social networks - about half of social networking users use more than one site, so the Harvard grad by day is most often a timpani player in a goth Architecture in Helsinki cover-band at night.

Why MySpace is for freaks and Facebook is for preps [Machinist]
Social network site users ‘are chronically unfaithful’ [Times Online]
Measuring the social networking divide [Valleywag]

The morning after: not always so pretty, is it?

Neither is the morning after the morning after (weekends don’t count in trading land), especially if you’re Stephen Schwarzman. After closing at $35.06 on Friday, Blackstone’s shares fell 7.5% to $32.44. This translated to a loss of about $655 million for The Schwarz, and (we’re assuming) no crab leg salads for a week.

When we started to write this post, BX had fallen to $31.15. It took us a while to find where the edited Crab Hands graphic was on the computer, and by the time it was located, they were down to $30.60. And not that we’re into kicking people when they’re down, but it should also be noted that Goldman Sachs, Merrill Lynch and Bear Stearns are all up (since yesterday’s close, trending with the market), so BX has no one to blame but itself.

Steve’s $655M Bad Day [New York Post]
Blackstone gives up debut gains [Financial Times]

Things keep getting uglier with this Bear Stearns story. On Friday, shortly after Bear announced that it would bail-out the less levered of its two troubled hedge funds, veteran Merill Lynch analyst Guy Moszkowkski announced that the bank was a potential takeover target.

“If the firm is not able to resolve its position without a meaningful loss, we think likelihood of a sale rises materially,” Moszkowski wrote.

Of course, a note of caution is probably in order. Despite the troubles at Bear, Moszkowski maintains a “buy” rating on its stock, which has recently taken a battering. When analysts have to justify a rating based on its takeover potential rather than its fundamentals, it’s a often a sign of desperation.

But this morning the theory got a boost from a Wall Street Journal story with the clever title “Bear’s Stock Is Acting Like Its Name.” The Journal noted Bear’s shares fell 1.4% on Friday when the bailout of the hedge fund was announced. On Monday they dropped another 3.2%. Overall, Bear’s stock is down 14.5% for the year, trading now at just 139.10.

“Bolstering this theory is the firm’s price-to-book value of 1.3, a level significantly lower than peers like Lehman Brothers Holdings Inc. and Merrill, which trade at 2.2 and 2, respectively. Firms with low multiples often make attractive takeover targets,” the Journal’s Kate Kelly and Greg Zuckerman wrote.

Mozkowski thinks a buyer would pay at least $185 a share—twice its book value.

Others are also backing Mozkowski’s buyout theory. “Their fancy headquarters in midtown are worth something. More than their formerly good name, which is now synonymous with subprime slime,” the blog Under the Counter writes.

Felix Salmon, who writes the Market Movers blog for Portfolio magazine’s website, is skeptical. “But color me unconvinced for the time being: if Bear has remained independent this long, I doubt a dodgy hedge fund or two will constitute its undoing,” he writes.

One person who has spoken to Bear Stearns chief James Cayne recently voiced skepticism at the talk of a takeover. “You have to be completely out to lunch to think Jimmy Cayne’s going to sell the company in a distressed situation. This guy believes in Bear Stearns. He’s not selling and you’re not getting it without his say so.”

Bear’s Stock Is Acting Like Its Name [Wall Street Journal]
Merrill’s Guy: Step Up Bear [UndertheCounter]
Bear Stearns: Takeover Speculation Returns [Market Movers]

Brian Koppelman and David Levien, the duo that brought us “Ocean’s 13” and “Rounders” have signed on to write “Alpha Cats,” HBO’s new show about hedge funds. So “AC” will either be a good series with frequent guest appearances by Matt Damon or a really boring one that looks and sounds exactly like its predecessors (though blissfully Julia Roberts-free) with frequent guest appearances by Matt Damon. Doug Ellin, executive producer, said he’s aiming for the show to be out next summer with the fifth season of “Entourage,” though “nothing is set in stone,” so don’t cancel your HBO just yet, even if we’re all on the same page vis-à-vis “Entourage” being off to a horrible start (save for the Anthony Michael Hall balcony brilliance).

‘Entourage’ Producers Hire ‘Ocean’s 13’ Writers for HBO Hedge Fund Series [TV Week]

In May, hedge funds had their best month in over a year, according to the latest monthly report from Eurekahedge. The Eurekahede Hedge Fund Index had a return of 2.4 percent, the strongest since January of 2006. North American fund managers saw a slightly lower gain of 2.1%. The real strength, however came from emerging markets, where the index had gains of 4.4%.

In terms of strategy, long-and-short equity funds and event-driven funds were the best performing, up 2.9% and 2.1% on average. Of course, both underperformed the unhedged strategy of being long the S&P 500, which saw a gain of 3% in May. And when you consider the fee differential between hedge funds and index funds, it’s not contest at all.

May 2007 Hedge Fund Performance Commentary [EurekaHedge: free registration required]
Hedge funds: how they did in May [FT Alphaville]
S&P 500 May Winners & Losers [Forbes.com]

Murdoch’s Dealings in China: It’s Business, and It’s Personal (NYT)
So, yeah, the Times’ hit piece on Rupert Murdoch has been pretty lame. It must’ve been frustrating for the reporters to go in with such a juicy target in their sites only to conclude that he’s, well, just an aggressive businessman. We had some higher hopes for Pt. II, cause ostensibly it’s all about Murdoch’s Asian fetish. But even there, the whole thing falls a little flat. He has a Chinese Wife. What, are you a racist or something? Who cares? And did we actually need reporters to tell us that? And he really wants to make money in China. Slam! Totally burned.

Lennar Swings to Quarterly Loss, Sees Continued Market Weakness (WSJ)
There’s no end in sight just yet to the woes of the homebuilders. Everything having to do with homes, from homeowners, to Home Depot, to mortgage-backed securities are running into trouble these days. But nobody’s taking it on the chin quite like the builder. It’s got to be particularly tough, seeing as they were such high flyers for some 15 years. Lennar announced that it’s plunged into the red and that it sees a continued bloodbath ahead. Still, the company did beat revenue estimates, just slightly, so they have a little something to hang their hat on.

Private Equity Investors Hint at Cool Down (NYT)
After shooting up, Blackstone has already had a rough time of it on the public markets and stories like this one aren’t helping. There continues to be a stream of statistical and anecdotal evidence that the good times for private equity aren’t looking to continue. That’s not to say that private equity firms won’t make tons of money going forward. They very well might. But, there are a number of headwinds, such as higher stock prices and excess liquidity, that these firms will have to overcome.

Fleeing Chávez, Oil Workers Flock To Frigid Alberta (WSJ)
This story could be titled: More Evidence of the Deterioration of Venezuela Pt. 32492432. Apparently, a number of oil workers, particularly engineering types, have decided to leave Venezeula and head for the rough lifestyle of the Canadian oil sands, in Alberta. By all accounts, the conditions are terrible up there. Totally cold and miserable and unlike anything in warm Venezuela. Even the oil itself sucks, since it’s mixed with sand and other non-oil elements that cost a fortune to remove. So the fact that folks are heading up to the great white north says something about how bad things have become back home. Undoubtedly, Chavez still believes that the industry can just be run by “the people” as long as it’s only goal is to serve the people, but we’re guessing it won’t be so easy. Meanwhile, these expats flocking to Canada must be turning their money into Canadian dollars, which only pushes up that currency’s value, bringing it closer to US dollar parity. Hopefully they’re sending back remittances and thus reconverting.

$$$ Blackstone = one of the year’s worst IPOs [MarketBeat]

$$$ Last Schwarzman reference (today). [Long or Short Capital]

$$$ Greenspan Comes Out Of Retirement For One More Interest Rate Hike [The Onion via CWS]

The New York Times published its 3800-word investigation of Rupert Murdoch’s NewsCorp today, but it doesn’t contain any of the dealbreaking revelations we anticipated. In the “Murdochracy,” the Times reports, Murdoch avoids government regulation and generally gets what he wants through the potent cocktail of intimidation, lucrative private contracts for elected officials, campaign contributions and enormous lobbying budgets.

We remain convinced that the Times’ business section would love to see the NewsCorp.-Dow Jones deal go through, if only to watch the Wall Street Journal tabloidicized. Inset into the indignant larger story by the news department, business section reporters Richard Siklos and Andrew Ross Sorkin have a short piece reporting that, after a tempestuous weekend, the Dow Jones deal is closer to realization than ever before. The news section seems to think Murdoch is a manipulative, dangerous man while the business section just likes watching their rivals at the Journal sweat.

Yesterday, Murdoch drafted a letter withdrawing NewsCorp from negotiations after he found the Dow Jones proposal to ensure the Journal’s editorial independence “insulting,” the Journal reported. The letter was never sent and talks returned to normal late last night. Even if Dow Jones and NewsCorp can agree on the governance of the Journal, the Bancrofts still need to settle on a price, meaning these negotiations could go push into July. Bankers we spoke to said it was unlikely that Murdoch would increase his offer.

We’re dialing the Murdoch Meter back five points after the tumultuous weekend.

Murdoch Reaches Out for Even More [New York Times]
Dow Jones Deal Talks Intensify [Wall Street Journal]

The arrival of summer weather in NYC had a lot of people heading for the beach this weekend. But before spending time courting cancer in the summer sun, we always stop off at the bookstore to pick up a book to break-up the time between smoking cigarettes and drinking beer. It helps if you can get your pals to read the same book so that when you do feel the need to talk to each other you have something to discuss.

The first book on DealBreaker’s summer reading list is Nassim Nicholas Taleb’s The Black Swan. We read his previous book, Fooled by Randomness, with a combination of fascination, wonder and annoyance. So we’re looking forward to cracking the spine on his new work.

We hope you’ll join us. We’re going to do this book club style. Our Summer Reading List items will be done as a conversation between DealBreaker writers, with commenters joining in below the post. We may even have a few guest posts by readers, commenters and others who decide to join us. (If you want to be one of the first readers to join in as a guest writer for the Reading List, email us at tips@dealbreaker.com)

The discussion begins tomorrow so be sure to pick up your copy today.

The Securities & Exchange Commission has opened up a preliminary inquiry into the near collapse of a highly levered hedge fund it managed, Business Week’s Matthew Goldstein is reporting. Apparently regulators would like to know how the investment firm went from telling investors that April’s losses were below 7% only to restate them at 18.97%.

This morning DealBreaker reported that the headline making troubles of two Bear Stearns funds were attracting the attention of two Capitol Hill lawmakers.

Bear’s Big Loss Arouses SEC Interest [BusinessWeek]

After opening with a poplet after its initial public offering on Friday, Blackstone’s stock has been trending downward toward the IPO price. On Friday, we asked DealBreaker readers to guess the price of the shares at close. (A move, we happily confess, was a blatant rip-off of a Market Beat item.)

Reader BB called it with his two PM forecast of a $35.01 close for BX. This was just a nickel short of the actual close of $35.06, making BB the winner according to our Price Is Right rules. We’ll be sending him a copies of Jack and Suzy Welch’s Winning: the Answers and Dana Vachon’s Mergers & Acquisitions. BB requested that we maintain his anonymity.

“I arrived at the $35.01 closing price by a combination of technical analysis and luck,” BB told us. “I noticed that after the initial pop in BX shares the stock sold off rather quickly, dropping from $38 and finally catching a bid around $35. It rallied back to $36, but I suspected another wave of selling before the close and guessed that the stock might hold that $35 level once again. Remembering the old Price is Right strategy, I tacked on a penny to my guess – and bingo: $35.01.”

Click here for a pop-up version of the chart BB used for his winning analysis. Arrow indicates the time the closing price forecast was submitted.

You remember Todd Thomson, the guy who got fired from Citigroup for either too loosely spending the company dime on Maria Bartiromo or because Chuck Prince needed a scapegoat to distract people from Citi’s performance (are C shareholders as easily distracted by someone getting canned as Jim Cramer is by his reflection?)? Even though he’s on his I’m-sorry-I-cheated-and-lost-my-job vacation with his family (a safari in South Africa), the old boy checked in with thestreet.com to say that he’s got plans to work in private equity.

Interestingly enough, Thomson told the news site that he believes himself to have “a clean and good track record.” Okay, sure. And getting funds shouldn’t be too difficult, given TT’s “business contacts and high-net-worth relationships.”

Ex-Citi Hot Shot Thomson Mulls a Private-Equity Comeback [thestreet.com]

A pair of troubled hedge funds managed by Bear Stearns sent shivers of fear through Wall Street and the hedge fund community, and Bear was forced to bailout the funds. The Hollywood guy who ran Yahoo was forced out, leaving the company in the hands of one of its founders. The Supreme Court struck down a pair of lawsuits that threatened to impose tremendous liability on investment banks.

Morgan Stanley posted strong earnings. Bankers and others from corporate New York ran wild in Central park. The New York Public Library honored Stephen Schwarzman with a star-studded party. The board of Dow Jones took over the negotiations for a possible sale of the company to News Corp. This seems to have put an end to the plot by Pearson and General Electric to stifle competition from a combination of News Corp and General Electric to stifle competition from a combination of Dow Jones and News Corp, which has indicated it might launch a competitor to GE’s CNBC and beef up the foreign bureaus of the Wall Street Journal.

The immigration bill came back to life on Capitol Hill, and the Senate approved increased fuel-efficiency standards. A bill to tax partnership gains as income rather than capital gains was introduced in the House of Representatives. The Blackstone Group’s Pete Peterson went to a party for his daughter on the evening that the company he co-founded priced it’s IPO at $31 a share. The stock closed up 13% the next day after a higher opening.

From the WSJ’s MarketBeat column, Google is bigger than Berkshire Hathaway in terms of market cap. Coming off the second worst week of the year for stocks, and the end of the 14 quarter streak of double-digit earnings growth for S&P companies, Google now has a market cap of $166.3bn and Berkshire Hathaway has a market cap of $165.6bn. Berkshire makes more net income than Google makes in revenue, but has worse margins, growth and is void of that whole ‘impending world domination’ ethos. Berkshire companies pull in $98bn in revenue and $11bn in net income while Google pulls in $11bn of revenue and $3bn in net income. Google has a 29% LTM net profit margin, which is the 8th highest in the NASDAQ-100, and just ahead of Microsoft’s 28%.

Midday Tidbits: Google, Bigger Than Berkshire [Wall Street Journal MarketBeat]

The lack of economic reports and earnings reports last week certainly didn’t leave Wall Street quiet. This week is full of government economic reports, as well as quarterly reports from several closely watched companies. Combined with pressure from a weird market schedule due to Independence Day falling on a Wednesday—and the plans of many people plan to take the entire week off—this should be, as they say at the movie theater, “action packed.”

Today the Dallas branch of the Federal Reserve releases its regional manufacturing-production index for June. This report is closely watched by traders and media groupies not so much because they care about what is happening to Texas manufacturers or even what it says about the shape of the economy. This is, instead, another way of trying to gauge what the Federal Reserve will do with interest rates. It’s the all-American version of Kremlinology. Halfway through the day, the the Treasury announces the results of its monthly two-year note auction.

On Tuesday, we’ll get new home sales data for May from the Commerce Department, someone or another releases “consumer confidence” survey results, and Richmond ‘s branch of the Fed releases it’s manufacturing report. More Kremlinology ensues. The Super market kings at Kroger, the top yachtsmen at Oracle and the running shoe rajas at Nike all release their earnings. We expect that these reports will show that people are still wearing shoes and buying groceries. They are probably still using databases as well. Remember to get your bids for the five-year T-Bill auction in by 1 PM.

The Wall Street Journal kicks off its conference, which is apparently too fancy of an event for DealBreaker to get an invitation. That’s okay, though, because shortly after we learned that we weren’t getting inside this thing, Blackstone’s Stephen Schwarzman cancelled. Good looking out, bro. Hank Paulson apparently didn’t get the memo, because he’s still scheduled to speak. The two big government reports will be the May Durable Goods report and the Chicago manufacturing index. Conagra releases its quarterly earnings report. Last year the company giant hooked itself on the opium of agribusiness, subsidized ethanol. So watch the earnings report to see how much money there is to be made when you have powerful friends in our nation’s capital.

Correction day hits on Thursday, when the Commerce Department releases its “this time we mean it” revision of GDP for the first quarter of this year. This is one of those “Wall Street versus America” reports: if growth is higher than expected, Wall Street will fear that the Federal Reserve will fear that inflation is getting out of control and hold off on cutting interest rates. We’ll also get to find out how more Midwest manufacturers did from the Kansas City Federales.

And, of course, Thursday is a very special day for the land of the free. The Federal Reserve’s Open Markets Committee—it’s main policymaking committee—holds its fourth meeting. Actually, the meeting starts on Wednesday. But on Thursday, the committee announces any change in monetary policy. Almost everyone assumes there will be no change. A change in any direction will basically make the markets do flips. Long ago someone once said that central planners have problems because they don’t have a price system to figure out how to price goods or how many shoes to manufacture for the proletariat. A few clever economists pointed out that the Kremlin could just look outside and see how long the lines at the shoe distributors were, and increase or decrease the next manufacturing orders based on Russians standing in the cold. This is more or less what Bernanke and friends are doing when the OMC meets, only with Americans and using numbers prepared by economists rather than windows and footprints in the snow.

At the end of the week the Kremlinology of the Federal Reserve will hit a crescendo when the Commerce Department releases its report on income and spending for June. Why do Fed watchers watch the Commerce Department report so closely? Try to pay attention. They watch for the Commerce report because they (correctly) believe that the Fed watches the report. If it shows income and spending accelerating, their will be a widespread assumption that the Fed will look at this as a sign of inflation. If it shows them slowing down, it might mean we’ll get a rate cut sometime before the Republicans (or whatever party has replaced them) retake the Senate in 2010 (the first midterm election under President Hillary Clinton, also known as 1994 for the twenty-first century).

Looking further ahead, next week is a bit quiet. At least on paper. But we said that about last week, so maybe you should expect turmoil. Senators are threatening to work through the holiday week to push through an immigration bill while most Americans are distracted by the flashing lights of Fourth of July fireworks., giving a strange new meanings to the quaint notion of American independence. On July 5th the nation will honor the passing of that titan of American business, Ken Lay. (Speaking of which, we need a Colorado correspondent to cover the first anniversary of Ken Lay’s death. Email us at tips@dealbreaker.com if you think you’re up to the task.)

Trying to monetize on the reality that there are a dwindling number of bankers traveling overseas via boat and/or Hover board, Goldman Sachs is strongly considering investing in a business class-only airline. Though no deal has been reached yet, the bank’s private equity arm has been in talks with airline executives about setting up a carrier that would exclude socioeconomically challenged patrons, and its buyout division has reportedly had several “informal” discussions with Luton’s Silverjet, toying with the idea, but not yet making any penetration.

According to Silverjet (whose aircrafts are redesigned 100 flat bed Boeing 767-200s), only 65 passengers are required on a flight to break even, as the average ticket costs a reasonable £1,000, with a transatlantic return flight costing £65,000 to operate. Should the deal go through, The Guardian notes that it would be a standard P.E. investment, and not a Goldman air taxi service, because business-class still does not require adequate insulation from the rest of the world. No word yet on whether Bear Stearns employees would be permitted to buy tickets.

Bankers warm to business class-only airlines - as flyers and investors [The Guardian]

From the Freakonomics blog, today is LEON Day, according to ButlerWebs. LEON is NOEL spelled backwards, which means it’s only 6 more months until Christmas, or the next time you might get a few days off (assuming your vacation is going to get cancelled and that you’re going to take only one day off for Thanksgiving, which is probably going to happen…again).

And Today Is… [Freakonomics]

Have you ever thought your boss’s boss’s boss an incompetent jerk, completely out of touch with reality and only in touch with his bloated compensation package and secretary’s ass? Would you like him to walk a mile in your shoes? Perhaps you ought to suggest to someone that the ogre who signs your checks should voluntarily spend a day working alongside the company plebes (i.e. you), just to feel what you feel. According to the Wall Street Journal, it’s a “trend” that’s gaining in popularity, “thanks to a new breed of hands-on CEOs keen to stay closely in touch with their troops.”

So far, the biggest names involved are Walt Disney, Continental, Sysco, and Amazon.com, but wouldn’t it be radical if some first-year analyst at 277 Park could get Dimon across the street and to the 2nd floor (or as we like to call it, the reverse penthouse, where we’re told by reliable sources it smells like Cheetos and feet), making excels and grabbing ankles with the team? If a brash young trader at SAC could get Stevie Cohen off his high horse so he could see how the other half lives? We don’t need to tell you the joy it would bring to the DealBreaker Headquarters to hear that Tom Hudson had to swab his own deck, water his own hanging plants.

A word of caution to those considering guinea-pigging their CEOs—Harlan Cleaver, chief information officer of DaVita notes that it wasn’t until after he enrolled in Reality 101 that he “really realized how incompetent entry-level people are.”

Top Brass Try Life in the Trenches [WSJ]

Thomas Robertson was named the new dean of Wharton late last week. Some details on the marketing man, myth and legend, from the Penn press release:

Robertson, the Asa Griggs Candler Professor of Marketing at Emory, is an expert in marketing strategy and innovation with extensive international experience in higher education and the business community. He was dean of Goizueta from 1998 to 2004 and is widely credited with building it into one of the strongest schools at Emory, positioning it as a leading international business school.

Does Robertson’s appointment and marketing expertise signal a shift in Wharton’s focus from corporate finance, or at least from bankers who correct you when you say they went to Penn (it’s WHARTON, alright!)? Robertson is already talking about fluffiness like becoming more “global” and bolstering the school’s position in the international market, which does not bode well for people who prefer a few more hours of default swap price modeling to intramural basketball.

Wharton is ranked #3 behind Harvard and Stanford in the very meaningful U.S. News and World Report Rankings.

Thomas S. Robertson Is Named Dean of the University of Pennsylvania’s Wharton School [University of Pennsylvania]

Hollywood has had a decent summer so far, amidst sequel saturation. Fortunately for the movie biz, the sequel influx has been void of any huge flops, although offerings have underperformed slightly.

Although the industry is still in denial about the margin squeeze created by the astronomical budgets of this round of sequels, without any major hitches, many insiders were still optimistic that Hollywood could have a record-breaking $4bn summer. That is until the cruel box-office foiling Deus Ex Machina of Evan Almighty flooded theaters last weekend.

Evan Almighty is the first real major studio flop of the summer. The Universal Pictures release cost over $175mm to make and brought in just $32mm in its opening weekend. Who would have thought that a film in which the US is subject to a Biblical style flood in which the majority of jokes consist of wacky CGI animal high jinks would fail?

The “Almighty” franchise’s first installment (Hurricane Katrina, according to Pat Robertson), Bruce Almighty, cost $84 but made $68mm on opening weekend and $242mm in domestic revenue at run’s end.

Universal can at least boast the one success of the summer with Knocked Up (containing a premise about as realistic as Evan Almighty), which cost less than $30 to make and has made $109mm in a month.

So far in 2007, Hollywood box-office revenue is up 3.5% on flat theater attendance, causing analysts to lower estimates of that record-breaking $4bn summer.

Third Time’s No Charm For Summer Blockbusters [Wall Street Journal]

Yes, the offering priced at $31 opened 18% higher at $36.55. Yes, Erin Burnett and Mark Haines could barely contain themselves all morning. Yes, DealBreaker wrote 131 articles about the whole thing on Friday alone.

But some people—cynical assholes—seem to think the BX offering was underwhelming. Andrew Ross Sorkin notes Paul Kedrosky, executive director of the William J. von Liebig Center for Entrepreneurism and Technology Advancement at the UCSD found the first day pop “scant,” that lead underwriter Morgan Stanley may have priced Blackstone’s units “low,” and that the offering paled in comparison to that of Fortress, Bukkake Party of IPOs, whose offer surged 68%.

ARS points out, however, that Tom Wolfe was on the scene, and that’s got to mean something. Indeed it does: an open bar (according to 24.3% of the DealBreaker audience). The $7.7 Billion Man and the $1.88 Billion Man (Schwarzman and Peterson, respectively) probably don’t much care either way whether or not you think Friday was a day that will live in infamy but, just for kicks, let’s hear it. The man who enabled “The Manny” deserves no free pass.

A Glamorous Public Debut for Blackstone [NYT]

Jason Binn is a lot of things, the foremost being the owner of Niche Media, publisher of Gotham, Los Angeles Confidential, Capitol File, Hamptons, Boston Common, Aspen Peak, Mississippi Delta, Nodes of Scranton and other titles. The specific “Niche” is inanity, as Binn’s magazines cover the cavorting and consumption of the wealthy.

Niche Media is set to merge with Las Vegas based Greenspun Media Group which publishes Vegas, Wynn, Venetian Style and Things You Didn’t Think Could Be Covered in Gold Monthly, and Ocean Drive Media Group which publishes Ocean Drive and Ocean Drive Espanol. The resulting media conglomerate will combine a bunch of regional media properties into a more national network of 16 publications with a circ of 750k and expected revenue of $100mm.

The real story here is not the new luxury media outlet but Jason Binn, who knows a lot of people and parties with them. Jason Binn doesn’t discriminate between old and new money, so he’s quite the innovator. His fame transcends mere hugs with John Lovitz (pictured) and knowing a bunch of other people in the publishing world. He has a laugh like Woody Woodpecker, he’s smallish in stature, he can’t say “no,” and his magazines “are less concerned with dour topics like income disparity than making sure you land on the right side of that divide,” all according to a severely man-crushing David Carr of the New York Times.

Carr compiles a list of Binnspired (if not Binnspirational) quotes:

“Watching him work a room is like watching Derek Jeter play baseball.” - Mark Edmiston, managing director of AdMedia Partners

“Jason Binn, you are a force of nature.” Cathleen Black, president of Hearst Magazines

“Jason is able to combine image, content and prestige, which is right up my alley.” – Benny Shabtai, president of Raymond Weil watches and owner of Di Modolo jewelers

“Jason has defined a place the publishing giants aren’t interested in, and he works it brilliantly. There is something very endearing about him — the chutzpah and lack of pretense.” – David Carey, president at Condé Nast and publishing director of Portfolio

“Jason Binn is the most overrated shortstop in publishing.” – Derek Jeter, New York Yankees

“Jason Binn raped me.” – Jar of Macadamia Nuts, room 528 mini-bar, Wynn Las Vegas Resort

Say ‘Cheese’ for the King of the A-List [New York Times]

It’s that time of year again. Just one year after Warren Buffett announced he was buying his way into paradise by donating the bulk of his fortune to a charity run by his friend Bill Gates, the annual auction of lunch with the Oracle of Omaha is back. You now have just four days and twelve hours to place your bids. The auction benefits the San Francisco charity the Glide Foundation.

The winner gets lunch with seven of his or her closest friends at Smith & Wollensky. And, of course, Warren Buffett gets a seat at the table too.

Warren Buffett Lunch Auction [eBay.com]

Fears that the narrowly avoided meltdown at a couple of Bear Stearns hedge funds last week could have triggered a “systemic event”—a domino-like tumbling of other hedge funds and investment banks—have not gone unnoticed on Capitol Hill. The staffs of at least two prominent lawmakers have been asked to look into whether new legislation regulating hedge fund activity might be needed to protect the capital markets, DealBreaker was told by someone familiar with the staffers work.

The staffers have contacted economists, legal scholars and some prominent hedge fund professionals seeking ideas for new regulations. There have been calls for new laws since the Supreme Court struck down a Securities and Exchange Commission regulation requiring hedge fund managers to register. But lawmakers in Washington, DC have been paying to the financial headlines in recent months with renewed interest, we’re told. Recently, bills to raise taxes on money managers have been introduced in both the Senate and the House of Representatives.

“At the very least, there’s going to be hearings,” the source said. “This is Washington, DC. Down here we believe that the best disinfectant is sunshine. Right now there is concern that no-one seems to quite understand exactly what happened with Bear Stearns. Or what might have happened. There’s the impression that hedge funds live in the damp attic of the economy.”

Although hedge fund managers mostly oppose regulation, Wall Street is not as universally opposed to regulating the industry as sometimes thought. Many investment banks make money from brokerage fees and by extending leverage to hedge funds, and currently a portion bear the costs of monitoring their clients as well as the risks of hedge fund failure. While banks would not want to give up this business to rivals, some might favor a move that would restrict all the players in the same way.

“Right now they are in a race to the bottom,” the source told DealBreaker. “Lawmakers are considering imposing a collective solution to the problem of exploding leverage and hedge funds. Everybody on Wall Street gets hit the same, while investment banks get to pass on the costs of monitoring hedge funds to the government.”

China Stocks Drop on Zhou Bubble Warning: World’s Biggest Mover (Bloomberg)
The Chinese stock market dropped 3.7% after central bank governor Zhou Xiaochuan warned of “irrational exuberance”. Just kidding. Maybe something got lost in translation, but it sounds like he just said that stocks may be overvalued and that the country may be forced to raise interest rates in order to reign things in. A number of stocks plunged by the maximum allowable on the news. But, c’mon people, it’s not like you didn’t know that Chinese officials have been skittish.

Report on Amaranth Collapse Is to Be Made Public (NYT)
A Senate subcommittee is set to release a report on the Amaranth crash. You know, typical government stuff — What happened? What went wrong? How can we avoid this in the future? Undoubtedly, the report will come alongside some prescriptive policy recommendations. It’s pretty unlikely that the Senate will have anything fresh to say that most people don’t already know, but even worse, they’ll probably miss the point. What would be interesting is if someone did a report about how such an enormous, highly-leveraged fund could collapse with such a small ripple. Why didn’t the collapse cause more of a panic? Why haven’t other funds and banks collapsed as a result of Amaranth’s collapse. Unfortunately, we can’t expect an answer to these questions.

Yen rebounds as profit-taking knocks carry trades (Reuters)
The Yen moved upward, as traders (allegedly) unwound positions based on the so-called carry trade. There are fears that the currency’s weakness and low interest rates are anomalous and unsustainable, and thus it’s only a matter of time before the fun is all over. It’s funny how long it can take for a certain arbitrage opportunity to disappear. Billions of dollars can be allocated just for the purpose of closing some interest rate gap, and yet it doesn’t happen. Even after everyone thinks it’s all over (like this March for example), it’s not over. As studies have shown, it’s the pervasive sentiment that an opportunity is over, which keeps the profits coming for those who seek to exploit it.

US apple growers brace for China rivals (AP)
Chinese apple farmers grow five times as many apples as their US counterparts, but at this point, there are no Chinese apples in the country. Ostensibly the country has to go through some safety review process before its apples can be sold here, but in the meantime it’s a nice trade barrier for the protection of US growers. Eventually, however, they will come, and US farmers will just have to deal. Here’s a recommendation: fix the goddamn red delicious. What was once a proud apple is now inedible. Yes it’s pretty, but that’s only because the skin is so tough and thick, much to the detriment of the eating experience. If you want to stave off the Chinese, bring back the delicious in the red delicious. Personally, as an apple fanatic, we’re looking forward to any new varietals that could hit American shores.

$$$ Maria took off her hat and got new hair. [Talking Biz News]

$$$ Securities (non) Valuation [Going Private]

$$$ Stocks Stocks Stocks: A Week in Review 06-22-07 [Long or Short Capital]

$$$ Wharton Picks Marketing Man for Dean’s Post [DealBook]

$$$ ‘BusinessWeek’ MBA Student Still Has A Lot To Learn [Gawker]

$$$ A young voluptuous assistant seeks charming, married portfolio manager for afternoon encounters. [Craigslist]

The New York Times will soon publish an extended investigative report on Murdoch’s global media dealings, the New York Observer is reporting. According to the Observer, the multi-bureau piece has been in the works since the NewsCorp.-Dow Jones deal was announced last month and was led by the Times’ managing editor Jill Abramson.

An unnamed source at the Times said that, in addition to Abramson, media reporter Richard Siklos, investigative editor Matt Purdy and reporters from New York, London and Beijing have been working on the article that is reported to be 3,500-plus words. It’s unclear whether the piece will contain any revelations, although it’s hard to imagine that many brains and legal pads not coming up with something juicy after nearly two months.

The Times would not comment to DealBreaker on the story.

Since the NewsCorp deal was announced, the parts of the Times that aren’t it’s Business Section has often been critical of the media mogul’s influence over his newspaper holdings’ editorial boards. On June 10, the Times published an editorial saying, “Most of us who still work for a family-controlled newspaper like The Times lament another news organization’s loss of protection from political currents and the unfettered demands of quarterly earnings.”

The Business Section of the paper has shown a schadenfreudistic enthusiasm for the deal. We get the feeling they aren’t too broken up that their downtown rivals may soon be working for Murdoch.

Times Undertakes Multi-Bureau Rupert Murdoch Investigation [The New York Observer]

‘NYT’ Races To Trash Rupert Murdoch [Gawker]

In the largest hedge fund bailout since the ‘Fund that shall not be Named’ in 1998, Bear Stearns is providing $3.2bn in loans to rescue its High-Grade Structured Credit Strategies Fund, which has lost about 10% this year. The Bear loans will replace the loans extended by the major banks, some of which exceed $1bn per bank.

Bear will not be rescuing its High-Grade Structured Credit Strategies Enhanced Leverage Fund, which is significantly suckier than the fund that’s getting rescued, having lost 20%+ this year. As the name suggests, the HGSCSEL Fund is more leveraged (the buzzword is “enhanced”) than its Cioffi managed cohort. Creditors extended about $9bn to the Bear funds, which made $11bn worth of bets on CDOs. The amount extended to the Bear funds is far more than the $3.5bn extended to LTCM, although Bear’s bailout is a bit more organic and a lot less potentially apocalyptic, to say the least.

Major banks are taking heat over the amount of low-value or illiquid exposure to the Bear funds. One of the hardest hit banks could be Barclays. Several sources are reporting that Barclays committed $1.2bn linked to the highest risk “sludge” tier of subprime loans, which is way more than the $300mm or so in exposure originally reported. Barclays could lose almost $500mm in all, CNBC’s Charlie Gasparino reports. Merrill put $850mm up for auction in collateralized assets from its loans, but could only dump $100mm worth. Merrill doesn’t expect to be able to dump the remaining assets any time soon.

In other developments (another Gasparino report) Cantor Fitzgerald, according to itself, has been able to sell off its seized collateralized assts at face value, and not 10-20 cents on the dollar as earlier rumors suggested. There is still no outside verification of this, however.

So far the estimated extent of the recent subprime fallout is up to $25bn in CDO losses, according to analysts at Lehman.

Barclays Capital exposed to embattled Bear Stearns hedge funds [Forbes]
Bear Stearns Plans $3.2 Billion Hedge Fund Bailout [Bloomberg]
Bear Bailout [CNBC]

The other shoe has dropped.

Top Democratic congressmen introduced legislation that would doubled the tax rates on carried interest. The new tax treatment would treat the carry as ordinary income rather than capital gains. It hits everyone from venture capital funds to real estate funds to private equity firms to hedge funds.

Several prominent hedge fund managers could not be reached for comment. Presumably because they are busy moving their funds off-shore.

Fund Managers’ Taxes to Double Under House Measure [Bloomberg]
Text of the Bill [pdf file via PE Hub]

Is Blackstone CEO Stephen Schwarzman two seconds away from doing a sequel to Cole Hauser’s drastically underrated Paparazzi, the vengeance-fantasy film in which a rising Hollywood actor decides to take personal revenge against a group of four persistent photographers to make them pay for almost causing a personal tragedy involving his wife and son, only this time, it’s not a Hollywood actor kicking ass and taking names, it’s the founder of a PE firm that just went public? Probably not.

But he may be making a conscious effort to stay out of the limelight, as Deal Journal reports that not only did he fail to show up to the NYSE for his own IPO this morning, but recently cancelled a planned appearance for next week at the Wall Street Journal’s Deals & Dealmakers conference, also at the Exchange. This sudden bout of shyness comes as a bit of a shock, considering that in March, David Weidner at MarketWatched pointed out that since January 1, 1985, Schwarzman’s name has been referenced 901 times, with one third of those references being made in the last sixth months. A Blackstone repetitive declined to comment, though did laugh at the question, which tells us nothing, but makes us think the sudden lack of public appearances can only point to one thing: $40/crab legs.

Schwarzman’s New Quiet Period [Deal Journal]

[click to enlarge]

Muffie Benson-Perella (muffie AT dealbreaker.com) is an Associate in the Investment Banking Division of a “Bulge Bracket” bank. She holds a B.A. in French and Art from Vassar College and an M.B.A. from Harvard Business School. Her regular column “Heard in the Suite” is a probing (and, ahem, fictional) weekly look into the secret lives and behind the velvet curtains of the investment banking world.

Dear Muffie:

Betsy “Boom-Boom” Baylor

Dear Boom-Boom:

The best way for me to teach you is by example, so I am including some real-life cause and effect examples from investment banks that involve a legal element.

Example #1: Email from work account

Cause:

——-Original Message——-
From: associate@prestigiousbank.com
Sent: May 20, 2007 4:35 PM
To: associate2@prestigiousbank.com
Subject: test

hey - iwas wondering if you knew anything that could help me pass a saliva/mouth swab test? i think I’m pretty screwed.

Effect:

From: dirhr@prestigiousbank.com (Director of Human Resources)
Sent: May 20, 2007 7:36 PM
Required: Associate; Cindy Reardon (Vice President, Human Resources); Robert Moss (Office of the General Counsel); Richard Fossbath (Managing Director, Investment Banking Division)
When: May 21, 2007 8:00 AM-8:30 AM
Location: Conference Room A, Human Resources, 35th Floor

Accept | Tentative | Decline | Calendar…

*~*~*~*~*~*~*~*~*~*

On the eve of the company he co-founded with Stephen Schwarzman going public in the sixth largest IPO in US history, Pete Peterson threw a party for his daughter Holly at the Four Seasons. The party, ostensibly to celebrate the publication of Holly’s debut novel The Manny, attracted a host of notable guests from the world of finance and media. It was a lavish affair in the grill room of the Four Seasons, defying expectations that Blackstone’s founders would be shying away from public exhibitions of their wealth after recent attention on Schwarzman’s wealth seemed to provoke a public backlash.

Our invitation must have been sent to the wrong address because we’re pretty sure Pete and Holly wouldn’t have neglected to invite DealBreaker. After all, they had invited riff-raff from New York magazine and “Page Six.” So we crashed the party. And promptly got tossed out into a raging storm.

We’ll forgive the Petersons because they have far more money than we do. Besides, being outside gave us the chance to pall around with CNBC’s Bertha Coombs and her team, and snap some pictures of the arriving guests. And eventually Holly stopped by to speak with us. She mentioned that she was proud of her father and that she thought that video for the Manny was “very funny.” But we wanted to know the answer to the most important question: was the publication of her book and the scheduling of this party the reason the Blackstone IPO was moved up an entire week.

“That’s just a coincidence,” Holly said.

A long time after all the important guests arrived, the party crash team from Gawker showed up, dressed in costumes that were part Eastern European goth and part Williamsburg drunktard. They tried to sneak into the party. No dice. Security and the PR girls blocked them like a third-rate Jersey City hedge fund trying to buy into the BX IPO. Instead, they hung around in the rain with us, chatting up the wealthiest cougars they could find.

[After the jump we bring you a slide show of Scott Bressler’s photos from the Peterson party.]

More coverage of the events from around the internet:

Crashing The ‘Manny’ Book Party [Gawker]
Liz Smith Gets Grabby at ‘Manny’ Celebration [New York Magazine]

We’re almost halfway through the first trading day for shares of Blackstone Group, which opened this morning at $36.45. The stock seems to be holding at that level, hovering just above and below the opening price on volume that is fast approaching 100 million shares traded.

But some are already starting to grumble that Blackstone’s opening day performance has been a bit, well, lackluster. Peter Cohan at Blogging Stocks contrasts the performance of Blackstone shares with those Fortress Investment Group, which rocketed upward on the first day they traded.

“Fortress’s stock rose 68% on its first day of trading in February 2007. This first-day pop may have inspired Blackstone to move forward with an IPO but Blackstone’s offering seems to have been greeted with a relative yawn,” Cohan writes.

Blackstone had the decided disadvantage of opening on a day when the overall market moved downward and traders were distracted by a rejiggering of the S&P 500. The Dow Jones Industrial Average is down over 100 points as we go to press. But Cohan thinks there is more going on here, including tax issues that threaten to hurt the bottom line of the company and rising interest rates that may make its deals more expensive.

“I think investors realize that not only does this offering suggest specific problems with Blackstone’s offering but it sends a signal about the outlook for private equity,” he writes.

Not everyone agrees that Blackstone’s performance indicate any problems.

“It’s clear that Fortress got jacked by their underwriters. A lot of institutional investors made a fortune on that opening. Schwarzman seems to have cut a better deal for Blackstone here, pricing the deal far closer to the market price while still giving those in the IPO a good shot at upside,” an investment banker told DealBreaker.

The Wall Street Journal’s Market Beat blog asks its readers what will happen to the shares today. Guesses are all over the place, going as high as a $90 close. So we’re turning to a higher authority—the DealBreaker readership. In the comments section below leave your best guesses at where BX will close. Closest guess without going over gets a copy of Dana Vachon’s Mergers & Acquisitions and a copy of Jack and Suzy Welch’s Winning: The Answers.

Blah, blah Blackstone, have you any bulls? [BlogginStocks.com]
Blackstone’s Bonanza [Market Beat]

What are hedge fund mangers doing this summer? According to Forbes, buying BMWs in hideous colors (even though the blurb says Aston Martin). They also have plans to spend $82,000 on watches and jewelry, $446,000 on yacht rentals, and $77,000 for luxury spas. Some of them are allotting an average of $96,000 to companies like Blacktomato.com, a firm that creates vacation packages that are off-beat and quirky so that people with no interests can simulate personalities.

These vacays run the gamut, from heliskiing in Chile to anaconda hunting in the Amazon. The firm also offers the option of “BlackBerry-free zone” packages for those who have not yet mastered the On/Off button. For $159,000, Blacktomato.com will send you to Iceland for a two-night stay in an ice house with meals provided by a “top chef” flown in for the occasion. For an extra $250,000 you can light him on fire, though Loeb is reportedly the only one who’s shelled out the extra cash for that so far.

How The Hedgies Will Spend This Summer [Forbes]

Lehman may have dominated day one of the JPMorgan Chase Corporate Challenge, but day 2 was more bearish for bankers, and bullish for GlaxoSmithKline. Day 2 also featured faster times overall.

GlaxoSmithKline was responsible for two explosive runs on the women’s side, courtesy of over the counter diet drug Alli, and the fact that the top two finishers, both from GSK, did not bring a pair of dark running shorts. Jessie Webb ran a 20:03 and Christa Meyer ran a 20:24, losing an impressive 7 pounds.

The only banker in the women’s top five was Sumitomo’s Katarina Melville who finished in third with a 20:27. Only a financial services employee, accustomed to much longer periods of getting shat on, was able to draft the GSK girls so closely.

Andy Bishop from GSK finished in fifth for the men with an 18:40.

The top two male finishers from last year squared off in the same race this time, and finished in the same order. Karl Dusen from AIG ran a 17:25 and John Traugott of Credit Suisse ran a 17:48. Dusen finished with the top overall time (too early to start “Dynasty” talk?), while Traugott’s time was 6 seconds off yesterday’s top finisher, placing him in third overall.

Click here to take a photographic journey of the race.

2007 New York results [JPMorgan Chase Corporate Challenge]

Shares of the Blackstone Group began trading on the New York Stock Exchange this morning under the ticker symbol BX at $36.45, an 18% premium from the initial public offering price. The opening was slightly behind schedule as the specialists handling the stock sorted out some pretty wild bid margins. One buyer asked for a hundred shares at a price of $1000 a share, according to CNBC.

The IPO raised $4.13 billion dollars last night, making it the sixth largest in US history and the largest in the last five years. (AT&T, Kraft, UPS, CIT Group and Conoco were all larger)—until you adjust for inflation and the relative size of capital markets. The IPO was massively oversubscribed and we’re told that many of the institutional investors came away with far fewer shares than they would have liked as the underwriters stretched the offering to let in as many of the big institutions and funds as possible. Admission to the IPO was more or less the hottest ticket in town last night (arguably hotter, even, than the party at Four Seasons thrown for debut novelist Holly Peterson, the daughter of Blackstone co-founder Pete Peterson).

A trader familiar with the plans of a few prominent institutional investors we spoke with said they wouldn’t be attempting to snap up more shares at the opening this morning, preferring to give the stock “room to breathe” after the IPO. He added that many investors were pleased that Blackstone didn’t try to push the IPO price higher despite the strong demand, a move which more or less guaranteed the stock would open significantly higher than the price they paid.

The Blackstone IPO has been one of the most closely watched—and fiercely challenged—events in recent Wall Street history. Novelist Tom Wolfe even showed up on the exchange floor to watch the action this morning, remarking that he came to witness “the end of capitalism as we know it.” Recent weeks have seen challenges from lawmakers who sought to block the IPO, threats of legislation that would raise taxes paid by private equity firms, concerns over Blackstone head Steve Schwarzman’s very publicly lavish lifestyle, and last minute changes in the unusual way the company accounts for its earnings.

But none of this seems to have dampened interest in owning the shares of Blackstone.

Schwarzman shrugged off the tradition of ringing the opening bell to mark the new listing. Some have said this was a move to lower his profile. (There’s been widespread criticism from others in private equity that Schwarzman has too heavily courted publicity, perhaps inviting political blacklash). Others have said that Schwarzman’s absence was intended to project insouciance and confidence about the stock offering.

This was very clearly one of the most surreal moments of BX: The Opening. Amidst the crowd of traders, there appeared a man with a shock of white hair in a double breasted gray suit. And that man happened to be Tom Wolfe.

After the jump, cast your vote for what Wolfe was doing at the Blackstone opening.

With the near collapse of its Sometime Secured High Fructose Professional Grade Financial Derivative Leveraged Fiscal Prudence Nomenclatural Triumph Fund (and sidekick – Crappy Subprime Fund II), Bear Stearns will not be engaging in an IPO of a riskier high yield slug of the aforementioned funds’ former securities.

The resulting fund, more elegantly named Everquest, had established a $200mm credit line from Citi and was ready to go public, having filed a preliminary S-1 on May 9.

How aligned is Everquest and Bear’s nearly failed funds? Very, according to the Everquest IPO filing. The two Bear subprime funds searching for a salvaging strategy owned 67% of Everquest’s ordinary shares at the end of last year, and certain transactions involving Everquest’s managers must be approved by “disinterested” directors on the company’s board, MarketWatch reports.

Bear Stearns to cancel Everquest IPO [Financial Times]
Everquest IPO tied to troubled Bear hedge fund [MarketWatch]

The countdown to the opening of Blackstone under the ticker symbol BX has begun. The opening volume is expected to exceed 16 million shares, and all sorts of crazy opening numbers are being thrown around. After the jump, we poll the ultimate authority: DealBreaker readers.

BP “sold” its share of a Siberian gas field to Gazprom this morning for the better part of a billion dollars, at the polite behest of Vlad Putin. BP teamed up with three Russian oligarchs to form TNK-BP, which controlled the majority stake in the Kovykta gas field. Russia has been trying to oust TNK-BP from Kovykta, which holds as much natural gas as Canada (ie – Russia is big), because the joint venture wasn’t meeting production targets. With Putinprom into the mix, all licensing and regulatory issues are resolved, according to the official KremlinKomment.

BP put $600mm into the project so far and insists that the sale was exactly how the company drew it up. In fact, BP was just warming up the gas field, awaiting Gazprom’s forced takeover. BP’s awkward compliance, from the Wall Street Journal:

BP officials have stressed that Kovykta has no value in its current state, with the prospects for export routes uncertain and little infrastructure near the field. They repeatedly have said they wanted Gazprom to have majority control of the project because it has a monopoly on exporting Russian gas and officials had hoped to sell output to markets in China.

TNK-BP still remains a significant part of BP, which poured $8bn into the venture in 2003. The partnership accounts for 1/5th of BP’s global reserves, 1/4th of its production and 1/10th of its global profit.

BP Sells Stake in Russia Gas Project [Wall Street Journal]

The advertising revenue DealBreaker doesn’t pay out to its summer interns is typically spent on Dot-Com Bubble-era relics. Our modest museum includes Gary Winnick’s Aeron chair and a few dozen yards of fiber-optic cable. We are working to acquire the lock and chain used to close the Webvan warehouse.

It was quite a shock then to find this on eBay, a genuine govWorks.com Post-It Notes Cube. Yeah, the one that went belly-up in the 2001 movie, “Startup.com.” And at a starting bid of 99 cents it’s a steal!

Blackstone prices IPO at $31 a share (CNNMoney)
As you very well know, this is the day. All the controversy, quiet periods, tax discussions, share pricing, underwriting, complaints about discrimination in the underwriting process, debates over valuation, etc.; they all manifest themselves today. In actuality they sort of manifested yesterday, today is just the unwashed masses get a crack at the shares. And it’s really just beginning of the story, not any culmination or anything, but you know. Unfortunately, the timing of the offering might make it a little harder to do the typical Friday slack off.

U.S. Labor Leader Aided China’s Wal-Mart Coup (WSJ)
For the past several years, there’s been a mad rush among entrepreneurs and big businesses alike to break into the China market. Going to China is almost seen as a strategy itself, something that’s a good idea even without any coherent vision of what to do when you get there. Seeing as the streets are paved with gold, that really doesn’t matter too much. You just go there and collect your money. Turns out, even labor organizers are salivating over the country of 1 billion people that aren’t making a living wage. Andy Stern, head of the SEIU, has been getting deeply involved in Chinese labor issues, and was one of the architects of the organization of Wal-Mart employees in the country. Now he’s looking to do even more, much to the chagrin of US businesses operating there.

Bears back in control (CNNMoney)
Which is easier, predicting market movements in the short term or the long term. Well, in the long term, you can probably say that “stocks will go up”, and you’d probably right. But in the short term, as in the morning before the market is open, you have all kinds of futures data, European and Asian market activity, economic indicators and so forth to help you make your guess. Here’s the thing, which we’ve come to realize, these articles that purport to say which direction the market will go in on a given day are almost always wrong. We’d love to see a study of this, or maybe we’ll start tracking it ourselves, and give you the answer. Day one of the experiment starts today. The pre-market article says down. We’ll give you the report after six months.

Qualcomm CEO welcomes iPhone (AP)
Although there’s no Qualcomm technology in the iPhone, the company says it’s looking forward to it. Can you guess why? Duh. Cause it validates the market, or something like that. The company expects consumers to show greater interest in the spectrum of higher-end phones, while the other makers are expected to step up their gain. Always gotta appreciate folks that look on the bright side.

Breaking: The Blackstone IPO priced at $31.

$$$ Both the LA Times and our own Joe Weisenthal ring the alarm bells about the valuation of the Blackstone Group. No one is listening.

$$$ Running the numbers on the Blackstone IPO

$$$ Congressmen Henry A. Waxman and Dennis Kucinich ask the SEC to stop the IPO. (Hint: That’s not going to happen.)

$$$ The boys at Deal Journal point out that Blackstone is paying half-price for the underwriting of its IPO.

$$$ Andy Kessler says the Blackstone IPO is a sign of the top of this market for leveraged buyouts.

$$$ The other shoe is falling: Congress may raise the taxes on “carried interest.”

Can I be honest for the first time in my life? I’ve never met Stephen Schwarzman. Nor I have I talked on the phone with him or engaged in any sort of IM conversation (but if you’re reading this Steves, it’s ohbabyitsbess and I’m waiting). So I can’t speak to whether or not he’s an asshole.

Of late, though, and especially today, that seems to be the consensus. In the Observer, Chris Shott apparently believes that Schwarzman is such a jerk that a scam had to be devised to make him seem like a nice guy who likes kids, wherein his daughter gave birth to twins while he was at the Pierre Hotel to lay out the Blackstone IPO, and he had to leave for the hospital. The weasel.

And on Tuesday Daniel Gross penned a profile about Schwarzman called “The Golden Ass.” He submits that:

• Schwarzman has practically been begging for attention.

• I wasn’t invited [to Schwarzman’s birthday party], but my gift would have been a first edition of Christopher Lasch’s Culture of Narcissism.)”

• He may have single-handedly ignited class warfare that will beggar himself and his Park Avenue neighbors.

• He is a titan of self-indulgence

• His public image to date is that of an ungracious, vain yutz.

• He’s like an NBA player who, having gone the length of a court for a slam-dunk with the game already put away, starts trash-talking, jumps atop the scorers’ table, gestures obscenely at opposing fans, pinches a cheerleader, chest-bumps the referee, sticks his tongue out at the camera, all while grabbing his crotch and yelling loudly that he’s the man.

Oh, and I once saw him gesture like he was going to give a homeless man a dollar bill and then light it on fire. And he eats crabs valued at $40/leg.

The Golden Ass [Slate]
Oh, Zibby, Thanks So Much for Calling! [The Observer]

DB Park Ranger Scott Bressler ventured to Central Park last night to snap some shots of the JPMorgan Chase Corporate Challenge. Many of the participating organizations had tables set up to offer food, propaganda or team motivation. The News Corp table was perched right next to the Dow Jones table, probably so News Corp could scare off potential bidders with extremely unfair and unbalanced tan lines (although both organizations swear the table placement was unintentional, and a little weird).

Pictured here are Dow Jones newswire editors Nick von Klock and Geoff Rogow, who said that the race this year was “Amazing sprinkled with awesomeness,” clearly referring to the one month run up in the value of their employee equity plan. Another Dow employee said the race was very “relaxed” this year. Another did an interpretive song and dance piece to the theme song from Rainbow Brite.

Dow Jones uses the race to run an inter-firm competition each year between the “old” and “young” employees (they wouldn’t comment as to where the cutoff was), usually with some golf implement at stake (last year it was a 7-iron). The young guys won this year.

Guys in the networking group of Lehman, jealous of the performance of Lehman’s female squad, mentioned that they were hindered by the crowd, most while pretending to have hamstring injuries. Regarding the horde, one employee suggested, “If it continues to be so packed in future years they should really split it up.”

Take a photographic journey of the race after the jump…

IntercontinentalExchange made another move to block the Chicago Mercantile Exchange’s bid for the Chicago Board of Trade today, this time sending a letter to all CBOT shareholders calling the potential merger a “bargain basement sale.” Last week ICE filed a preliminary proxy statement with the SEC after CME upped its offer to $10.6bn, still $1.3bn short of ICE’s rival bid. CBOT shareholders are scheduled to vote on the deal July 9.

Although the CBOT board has said repeatedly that it favors the Merc offer, citing an easier integration of the two Chicago-based exchanges, the letter from ICE CEO Jeffery Sprecher extols the undisputed pecuniary superiority of his offer, saying,

The fact is that your Board has endorsed a deal with CME that undervalued the CBOT from the outset. And, since ICE’s first proposal, CME’s offer has never been financially superior. After saying repeatedly that it would not increase its offer, CME was forced to improve its proposal in reaction to the innovative value enhancements offered by ICE. Despite your Board’s best efforts to convince you otherwise, CME’s proposal remains 12.5% below the value of the ICE offer.

ICE Urges CBOT Stockholders and Members to Reject Sale to CME [ICE]

Does former Citigroup CEO and Citigroup-as-a-monstrosity defender Sandy Weill read hedge fund manger Tom Brown’s blog? Hard to say (he does read DealBreaker, so maybe). TB apparently thinks so, and today offers Weill a slightly calmer, more rational plan for what he thinks should happen to Citigroup. For those of you who haven’t been keeping up, on Tuesday, Brown called C a “supersized jackalope,” and in response to Weill’s assertion that “Being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets” wrote:

Why Weill thinks that investors would take comfort in that statement, I can’t begin to understand…Citi has gotten so big, and lumbering, and broadly diversified that it simply can’t generate meaningful organic growth anymore. The law of large numbers won’t allow it.

If all I wanted from my investment was an instrument that would “withstand financial turmoil” I’d simply buy Treasury bills and be done with it. Presumably Citigroup’s shareholders want something more than that.

After being shot with a tranquilizer gun, Brown sat back down at the computer and, in his own words, decided to meet Weill—and Prince, since, for the most part, he’s in charge—“halfway,” presupposing that Weill y Prince have any interest in moving an inch. Less drastic than completely breaking up the bank, Brown is now advocating for partial IPOs of Citi’s various business, with the parent company owning 80% of Citicorp, Salomon Brothers, Smith Barney and CitiGlobal, and the remaining 20% trading in the public markets.

The advantages, according to Brown, would be that:

+The people who run each unit would have a publicly traded entity whose value, for better or worse, would be directly affected by the results of their efforts. So if Salomon shoots the lights out, for instance, the results in the stock market wouldn’t be canceled out by a weak year at the commercial bank. Rather, the price of the Solly stub would presumably zoom.

+A partial IPO of Citi’s business would be a powerful force to counteract the “conglomerate discount” that so often penalizes the valuation of Citi’s stock relative to the stocks of the companies it competes against.

+Separately traded stocks could be a potent check on some of management’s nuttier capital-allocation schemes.

Weill (Prince, Prince), your rebuttal?

Citigroup’s Breakup: How About Plan B? [bankstocks.com]

Damn the torpedoes! Full speed ahead!

Kohlberg Kravis Roberts have hired Morgan Stanley and Citigroup as underwriters for the potential public offering, CNBC’s Charlie Gasparino reported today. While warning that the plans were still tentative, Gasparino said that KKR would pursue an IPO that would compete in size with Blackstone’s.

There has been rumor and speculation that KKR would follow its rival Blackstone into the public markets since news of Blackstone’s offering broke months ago. But the last time we checked in, people were saying KKR had rejected going forward with an IPO. What’s more, some had wondered if tax legislation recently proposed in the US Senate would have a chilling effect on the urge to go public. The proposed bill would force private equity partnerships to pay taxes at the corporate rate if they go public, instead of treating profits as capital gains taxed when distributed to the partners under the current law.

But despite the potentially higher tax bills, Blackstone seems undeterred in their desire to sell shares. And investors are apparently undeterred in their desire to buy them. Talk that the higher tax bill could knock as much as 20% off the value of Blackstone has not been reflected in the appetite for the shares.

The success of Blackstone’s offering, which is expected to price tonight at the high end of its range and is reportedly oversubscribed by a factor of seven, has sparked talk of offerings coming from not only KKR, but Apollo, Carlyle and TPG. Gasparino says that Apollo is also leaning toward an IPO, something he has steadily maintained despite contrary reports in the New York Times.

There’s something of an irony in KKR following Blackstone in offering shares to the public. According to sources familiar with the genesis of the Blackstone IPO, the idea of going public was hatched after KKR succeeded in selling shares in one of its buyout funds to the public. At the time, Blackstone head Stephen Schwarzman publicly complained that the enormous offering had sucked the air out of the market for exchange traded private equity funds. Selling partnership shares of Blackstone was hatched as a new way of getting at the capital markets. So KKR may have inspired the very offering that they are now looking to imitate.

KKR May Launch IPO Later This Year: CNBC’s Gasparino [CNBC.com]

Business Week’s Matthew Goldstein reports that federal investigators are nearing the end of their 18-month probe into the “murky world of stock lending,” and it looks like it’ll be employees from Wall Streets stock-loan desks who’ll be going down.

The folks who’ve undergone the most scrutiny work for Bear Stearns, Janney Montgomery Scott, and Morgan Stanley. On June 18, Morgan Stanley vice-president Peter Sherlock, who’d been with the bank for 13 years, resigned after his name came up in the case. His lawyer, John Wallenstein, declined to say why his client had taken an early retirement, but did confess to “know[ing] there is an investigation by the Eastern District of New York” and “know[ing] the SEC is looking at it too.”

Earlier: Trouble In Stock-Loan Scheme Town

Criminal Probe Snares Morgan Stanley VP [BusinessWeek]

We hadn’t heard anything from massage enthusiast Jeffrey Epstein in a while so we decided to check in with Page Six to see what was new with the old boy. Not that much. Certainly no news on the criminal charges against him involving, well, the creative combination of young girls in Palm Beach and massage therapy. But apparently he’s quasi-involved in a little fight over at Harvard concerning a cancelled speech, evolution and a tourist who just can’t get enough of the country formerly known as the Switzerland of the Middle East.

Rutgers University biologist Robert Trivers alleges that Epstein and his friend Alan Dershowitz used their “clout” and a little elbow grease to get a talk that Trivers was to deliver at Harvard’s Program for Evolutionary Dynamics cancelled. Why would Epstein and Dershowitz want to shut down Trivers?

According to Trivers, it’s because he called Dershowitz a “Nazi-like apologist” for his “rationalization of Israeli attacks on Lebanese civilians.” Trivers also claims that Dershowitz, who is Epstein’s defense lawyer against those charges from 2006 for the solicitation of prostitutes, is a “barroom brawler” and has threatened to “beat Trivers up.”

[Editor’s note: That was clearly and egregiously wrong. As many of our commenters pointed out, it is absolutely not credible that anyone would describe Dershowitz as a barroom brawler. And it seems unlikely that many people would be physically intimidated by the Harvard law professor. In fact, according to Page Six, it was Dershowitz who called Trivers a brawler. We offer our apologies to Dershowitz. And to Trivers for implying he might have been afraid of getting beat up by Dershowitz. And, of course, to you, our readers, who were misinformed by our reporting on the story.]

But what’s most shocking about all this is that Epstein still has the “clout” to get anything canceled at Harvard. Those folks didn’t admit Warren Buffett but they let Epstein tell them who shouldn’t be allowed to give a lecture?

Blame Game [New York Post]

After activist shareholders pushed Terry Semel out of Yahoo last week, his successor Jerry Yang needs to raise the floundering search engine’s advertising revenue quickly or re-don his jester cap as Chief Yahoo. Social networking is the obvious answer and after a potential Yahoo-Facebook deal fell apart earlier this year, Rupert Murdoch is the man to see. The Times of London, a News Corp. holding, reported yesterday that Murdoch and Semel had been in talks to trade MySpace for a 25% ($10-12bn) stake in Yahoo.

It is more than likely that Yang will pursue this deal with the leading social networker, even at Murdoch’s inflated price. Rupe paid $580mn for MySpace two years ago, but after Facebook’s financer said he wouldn’t sell for less than $8bn, a $10bn MySpace shouldn’t be anathema to Yahoo. If Yang balks at the Murdoch proposal, it may go down with Semel’s infamous missed opportunity to buy Google and will probably mean an interim-only CEO appointment.

With the news, Yahoo traded up 1.6% to $28.08 and News Corp. was up 1% to $23.92.

Yahoo! For MySpace? [Forbes]
The social network bubble [Valleywag]

Less than twenty-four hours after the board of directors of Dow Jones announced they were taking over negotiations with News Corp, Financial Times publisher Pearson and General Electric announced they were dropping plans to make a joint bid for the company that owns the Wall Street Journal.

The two companies had been negotiating with each other over a deal that would have combined the financial news network CNBC, Dow Jones and the Financial Times. Critics of the proposed plan said that it was too complex, would cost too much and was likely to result in job losses at the newspapers. Shareholders at Pearson had already begun to object to the company spending heavily to buy another financial newspaper. And some wondered whether antitrust authorities in the US and Europe would even permit the combination.

But for all its problems, the potential partnership was arguably the only credible alternative to the offer from News Corp. Despite the Bancrofts publicly saying they would sell the company under the right circumstances and a hunt by union representatives for an alternative buyer, no one else has emerged with a firm offer for the company. Right now it’s Rupert or nobody.

Pearson, General Electric Drop Plan for Dow Jones Bid [Bloomberg]

The unofficial JPMorgan Chase Corporate Challenge results for race #1 are in, and times were predictably slower than last year, as bankers got much fatter. The top five finishers on the men’s side included only one bulge bracket BSD (that was taped to avoid drag). Mike Guastella from Morgan Stanley ran the 3.5 miles in 18:02 and finished 3rd.

Lehman girls dominated the women’s race, aided by the lower body strength developed from wearing aggressive shoulder pads in business formal attire. Lehman lady Kelly Chin led the pack with a 21:01 and close behind was co-worker Elizabeth Williamson with a 21:27. Diane Kenna from Merrill finished 4th with a 21:51.

DealBreaker Anti-Chaffing Specialist Scott Bressler attended the event and the requisite candy photography is forthcoming.

2007 New York results [JPMorgan Chase Corporate Challenge]

So what if the initial public offering is pricing tonight? Who can even worry about a bunch of Senators who think it’s not fair that Steve Schwarzman’s tax rate is lower than the guy who makes his $400 crab salads? Tonight’s real Blackstone action is happening at the book party for Holly Petersen, the socialite daughter of Blackstone co-founder Pete Peterson, at Four Seasons. Peterson has written a book called The Manny, a roman a clef novel about wealth, sex and wealthy sex. (You know how it goes: less often but with less clothes on.)

To promote the novel the publisher has also put together the music video above, set in the sumptuous apartment of Blackstone’s Peterson at River House on East 52nd Street. The video opens with an investment banking type ignoring his wife’s plea for attention while he taps away at his Blackberry. Enter the Manny, the white knight who comes to fulfill the unmet needs of an upper east side woman wife with a driver from Jamaica, a tailor from Hong Kong, a super from Costa Rica, a maid named Wong, and two illegal alien nannies. It’s a hard-knock life in the one-double-oh-two-one.

Oh, and Holly? What else do you need to know about her? The heiress daughter is described as having “upper east side connections and a downtown sensibility”—which, we’re told, is exactly what the bouncers at the Box are told to look for when deciding who gets in. (None of those LES riffraff, please. Shouldn’t those people all be in Williamsburg by now?) And, of course, she cleared over a million from the publisher who signed her for the deal.

When it rains, it pours, as they say. And when you are the daughter of the founder of Blackstone, apparently it pours money.

The hauntingly empty lobby of Bear Stearns

Yesterday’s showdown over the fate of two big Bear Stearns hedge funds “marks an important test of the financial markets’ resiliency,” according to this morning’s Wall Street Journal. So the natural question is: how did the financial markets score? What does the report card look like on the day after several investment banks flinched from pushing these two funds over the edge?

If “Plays Well With Others” was one of the subjects being tested, several of the investment banks who were exposed to the losses at the hedge funds scored very well. JP Morgan Chase, Goldman Sachs and Bank of America all reached negotiated deals with Bear Stearns to limit their risk. Although the details are sketchy, it seems that these deals involve Bear Stearns buying back collateral assets the banks had seized, forestalling a need to auction them off.

Merrill Lynch didn’t score quite as highly in this category, and late yesterday afternoon proceeded with an auction of Bear Stearns assets it had seized. We’re told the auction met with mixed results. Some of the higher-quality assets with less exposure to the subprime market met fetched what the Journal calls “reasonably high prices.” Other assets—variously described as “sludge,” “junk in investment-grade clothing” and “immoveable objects” by traders we talked to—faired less well. The Naked Capitalism blog describes them as fetching “atrocious prices.” Deutsche Bank also seems to have opted to auction off its collateral rather than cut a deal with Bear Stearns.

But at a more fundamental level, the test may have revealed a foreboding weakness in the credit derivatives market. JP Morgan, Goldman and Bank of America are said to have pulled back from auctioning off the collateral because earlier feelers put out to potential buyers revealed that the assets they had seized would have “fetched so little in the market,” according the Journal. The idea is that if they had brought down the the Bear funds, the investment banks would have hurt themselves as well. As Alphaville puts it, “So the picture becomes clearer: eat, be eaten, eat each other, but stop before you accidentally eat yourself.”

But something even more ominous also may have convinced the banks to reach a settlement a real market test for these assets—the CDOs rarely traded and are priced according to complex mathematical models—might have demonstrated that they were worth far less than they were valued at on the books of hedge funds and investment banks. This could cause a ripple effect, forcing re-valuations at many hedge funds that hold similar assets, and at the banks that lend to them.

“As its two credit focused hedge funds with about $20bn of highly leveraged assets are put on ventilators, there is real pressure in the market for the creditors not to sell the collateral for fear of undermining the value of the CDOs and other debt packages. As we all know, they are near impossible to price accurately, due to the nature of the underlying distressed assets, and if these CDO’s are valued downwards, then all hedge funds who own similar subprime assets will have to do the same and hey presto we have a falling market, more defaults and the house of cards comes tumbling down,” Finbar Taggit writes today.

In short, by flinching from auctioning off the CDOs, JP Morgan and the other banks that reached deals with Bear Stearns may have prevented what some feared would become the much heralded “systemic event” in which the collapse of one hedge fund brings down all the others. But the cost of doing so appears to be keeping the actual market values of many of these assets more or less financially illegible. And keeping markets and regulators illiterate when it comes to reading the risks of these products.

One trader we spoke to described the outcome as a “cartoon moment.”

“As long as Wiley Coyote doesn’t realize he’s run off the cliff, he won’t fall,” he said. “These guys don’t want to look down because they are afraid there may be no there there.”

Bear’s Woes Test Markets’ Mettle [Wall Street Journal]
Bear Stearns Staves Off Collapse of 2 Hedge Funds [New York Times]
Subprime sector hit by $1bn assets sale [Financial Times]
Bear feast - be sure not to eat yourself [FT Alphaville]

On the stage of comic Dow Jones bidding foils, enter Brad Greenspan (pictured, really leveling with us), otherwise known as the guy who owned the nest that MySpace hatched in. That is until Rupert Murdoch stole the hatchling for 0.1x, which is something ‘Beenspan’ is more than a little bitter about.

Beenspan outlined his vendetta bid in a letter to the Dow Jones board. He wants to buy 25% of DJ’s stock at $60 a share (about $1.25bn), opposed to the people who want to buy 100% of DJ’s stock for $60 a share or more. This, apparently, gives the deal the flexibility to provide willing sellers with liquidity, while ignoring the people who don’t want to sell in the first place. It also gives Beenspan the ability to avoid explaining why there isn’t enough cash in his wallet, which can be an embarrassing first date.

What Beenspan brings to the table are these new-fangled things called social networks. Scratch that, they aren’t social networks, they’re business networks. It’s not Web 3.0, it’s Web 3.05, beta – the WSJ as a business network with user-generated content, enhanced interactivity, and other buzzwords. Beenspan also wants to tart up the WSJ with the revolution that is video content, lots and lots of video content.

This original brilliance provides the following relative advantages, according to Beenspan’s letter:

1) KEEPS THE DJ/WSJ INDEPENDENT FOR THE BENEFIT OF LARGE CONSUMER BASE. (or at least free of a “fair and balanced” take on finance)

2) PROVIDES PREMIUM LIQUIDITY EVENT. (at a convenient discount to other premiums)

3) ALLOWS DJ TO GO ON OFFENSE. (essential when WSJ plays the Colts)

4) UNLOCKS HIDDEN VALUE. (like when you duck behind the last gray block in stage 1-3)

5) PROVIDES UPSIDE FOR EVERYONE! (“Myspace Tom” will be your friend and business partner, and so will Amber, who insists that she’s online in a video chat room right now and that you don’t need a credit card to talk to her)

Sheer Bradness [ValleyWag]

But a hedge fund manager with a virulent tongue does, and there’s some bad air between the two of them. Recently Weill, Citigroup CEO Emeritus, was quoted in the press as defending the giant bank he built. “Being large and having a strong balance sheet enables a company to withstand the financial turmoil that happens every now and then in global markets,” Weill said.

In response a former banker turned hedgie manager (of Second Curve Capital) described the company as a “supersized jackalope.” And he didn’t stop there:

Why Weill thinks that investors would take comfort in that statement, I can’t begin to understand…Citi has gotten so big, and lumbering, and broadly diversified that it simply can’t generate meaningful organic growth anymore. The law of large numbers won’t allow it.

If all I wanted from my investment was an instrument that would “withstand financial turmoil” I’d simply buy Treasury bills and be done with it. Presumably Citigroup’s shareholders want something more than that.

Coming to Weill’s defense was the one other person on earth who doesn’t think Citigroup should be broken up, Saudi Prince Alwaleed bin Talal: “I am adamantly against breaking up Citigroup…I see this as a bad idea that should not even be considered.”

Portfolio’s Felix Salmon has helpfully offered to arbitrate the fight. According to Salmon the problem with Citigroup is not that it’s too big to grow. It’s that it may be too big to manage. “If a strong leader could communicate a simple and effective vision for the company, the calls for its breakup would soon cease,” Salmon writes. “But such people are hard to find.”

This question doesn’t really merit us making a Vizu poll, since the results will most likely be “No” (BSD) and “Yes” (everyone else), but tell us what you think, re: Should Citigroup break up?

Weill Says Big Is Beautiful; Hedge Fund Disagrees [DealBook]
Why Citigroup Should Be Broken Up - Now [Seeking Alpha]
Is Citigroup Too Big? [Portfolio]

Luxottica to Buy California’s Oakley for $2 Billion (Bloomberg)
Now here’s a monopoly for you. Luxottica, the maker of Ray-Bans and other glasses, will buy out Oakley, the maker of the Oakley Thump (sunglasses + mp3 player) and other sporty shades for $2.03 billion. Both of these companies have been pretty hot lately. Ray-Bans are enjoying an awesome surge, as the classic Wayfarer frame is suddenly very trendy again. Unfortunately, a lot of hipster have become fond of fake, non-Ray-Ban Wayfarers, which are actually really ugly and cheap looking. Analysts see the consolidation of the two companies as cementing Luxottica’s dominance.

Goldman Recommends Buying Apple Call `Spreads’ Ahead of IPhone (Bloomberg)
Psst. You gotta keep this news real quiet. It’s only between us, you, and Goldman? Lips sealed? Okay. Apparently, this trendy consumer electronics company called Apple (right, the maker of the iPod) is coming out with a phone in a couple weeks, and there’s a good chance that the stock will jump on the day it goes on sale. Why will it jump? Because nobody is seeing this news coming. Nobody realizes that the iPhone is coming out, and when it does (and news reports show a lot of people lining up at stores), everyone will be shocked at this phenomenon. So here’s your chance to get in now! Ground floor baby. Before the masses realize what’s going on.

Few Choices for Workers at Dow Jones (NYT)
It’s apparently news tat the workers at Dow Jones aren’t terribly enthused about the prospect of seeing their company get acquired. Well, duh. Nobody at Dow Jones (except common shareholders) seems to like the prospect. What’s more, we know how the workers feel, because they write about it every day on the front page of the paper, dropping not-so subtle hints about what a Rupe-led Dow Jones might look like. If you believe their vision, it ain’t pretty.

Whole Foods to Unload Wild Oats Stake to Apollo (Dealbook)
If you were to just look at the store footprint of Whole Foods and Wild Oats, you’d have a hard time seeing how a combination of the two companies could really be such a market disaster. Nevertheless, the companies are prepared to make some concessions in order for this deal to go through. Whole Foods said it will sell 35 Wild Oats stores to Apollo Management, should the deal be allowed to go through. We’re guessing that this will be a good deal for Apollo, seeing as they could be rescuing the deal by taking on these 35 stores. Apparently, Apollo is pretty familiar with Wild Oats, as it once considered buying out the whole chain itself.

BREAKING NEWS: Merrill Lynch are “hard-asses.” They’ve seized $850 million worth of assets from Bear Stearns and begun the process of auctioning them off, Gasparino reports. So far, it seems, JP Morgan and Deutsche Bank have not yet begun selling. [CNBC.com]

$$$ Deals: Global Buyers Troll America

In our M&A Roundup for the week ending June 15, some of the biggest purchases are by British, French, Chinese, and Australian companies. LBOs again are king. [CFO.com]

$$$ The Virtues of Flatland [Going Private]

$$$ Wall Street II - Gekko comes to London [FT Alphaville]

$$$ Wholesale Organic Idiocy [Long or Short Capital]

The board of directors of Dow Jones will take over the negotiations on the future of the company, the Wall Street Journal is reporting. The Journal says that the describes the board as “frustrated by the Bancrof family’s foot dragging in its negotiations with News Corp.”

This new move by the board, which had taken a deferential stance to the Bancroft family until today, makes it far more likely that Rupert Murdoch’s New Corp will buy succeed in buying the company.

“In recent weeks, members of the Bancroft family had grown wary of any deal with Rupert Murdoch’s News Corp., and had been laboring over a proposal to safeguard the editorial independence of Dow Jones,” the Journal’s Sarah Ellison writes. “But as the family’s negotiations with each other and their advisers continued with no resolution in sight, the company’s directors were growing increasingly concerned that by not responding to Mr. Murdoch, the family was endangering the negotiations.”

The Murdoch Meter has jumped up another five points to show a 90% chance that News Corp will buy the company.

Dow Jones Board Takes Over Talks [Wall Street Journal]

We are all quivering with excitement over the Blackstone IPO this week, but some, like Breakingviews.com editor Edward Chancellor, are looking further into the future. Because many of us at Dealbreaker hold or are pursuing advanced degrees in comparative literature with a financial sector specialization, we were fascinated by Chancellor’s piece in the June Institutional Investor: a fictional and dead-serious letter from Stephen Schwarzman to Blackstone shareholders, dated June 1, 2012, regarding the proposed buyback and delisting of Blackstone shares.

According to the letter, after Blackstone goes public this week, it will face five perilous years marked by “deteriorating economic conditions, extraordinary convulsions in the credit markets, a worsening political and legal environment for the buyout industry, and the consequences of what is not commonly referred to as the ‘private equity bubble.’” It will all culminate with a buyback at $15-per-share (a “substantial premium to current price”), about half of the anticipated IPO price.

As a document of 2007, the letter is more didactic than damning, saying of the “Private Equity Bubble,”

The entire buyout industry, including Blackstone, must accept its share of responsibility for our current woes. At the time of our IPO, returns from buyouts had been excellent, largely because both corporate valuations and profits had been rising in tandem for several years.

In hindsight, it’s clear that we became over confident. Too much private equity money was chasing too few opportunities. We found it difficult to resist the urge to raise ever-larger funds. And we put that money to work to quickly. In the takeover frenzy, many private equity firms were over stretched. There was a collective loss of investment discipline. Too many businesses were bought at large premiums when profits were near a cyclical peak. Given the fees on offer and the ease with which assets could be flipped only months after acquiring them, out actions were understandable.

Imagining a not-too-distant world in which Blackstone forsakes its listing [Institutional Investor]

DealBook reports that Credit Suisse has added two new managing directors to its investment banking group. Tom Delbrook joins the firm’s general industrial and services group from UPS. Markus Pressdee is in as head of new infrastructure, having worked as a banker at UBS.

Credit Suisse Adds to Investment Banking Team [DealBook]

According to a recent study in the Journal of Socio-Economics, the “happiness” of not spending your life at a bank can almost equal those gargantuan bonuses that were paid out this year (or the ones analysts are about to receive).

The University of London study run by social economist Nattavudh Powdthavee surveyed 10,000 Britons and placed them on a “life satisfaction scale.” Using some shadow pricing regression analysis and other wonderfully fuzzy math, Powdthavee determined the dollar amount it would take to move from point to point on the scale. The study concluded that the following differences in one’s life were worth the following amounts annually:

- Increase in health from SeamlessWeb-ass to excellent: $631k
- Increase in face time with friends and relatives from rarely to most days (in the workplace of life, there is such thing as face time): $179k
- Talking to (non cube) neighbors more often: $79k
- Getting married (to something besides your most recent model): $105k

Powdthavee does concede that removing some letters from his name would be worth at least $500k annually, and that most people do choose to take the actual money made from work, rather than the implied payoff from better health and relationships. You can always buy that gym membership, and Amanda Peterson’s new dress.

Good health, relationships make us happier than money, new study says [Leader-Post via Freakonomics]

Lawmakers supporting the bill on Capitol Hill to raise taxes on private equity firms going public claim that it’s a basic matter of tax fairness. The bill’s sponsors, Democratic Senator Max Baucus and Republican Senator Chuck Grassley, have argued that private equity companies should not be allowed to access the public capital markets without having to pay the 35% corporate income tax. But the notion that private equity firms enjoy an unfair tax advantage may actually depend on a misunderstanding of how they make money and how they pay taxes.

Most private equity firms are organized as partnerships so that they can take advantage of a provision of the tax law that exempts certain kinds of partnerships from the corporate tax. Like most parts of the tax code, these provisions are written in a convoluted loophole-within-loophole style way that would have string theory physicists scratching their heads. So don’t get too worried about the details.*

One of the reasons the partnership structure is so important for private equity firms is that they make so much of their money from owning and selling operating companies—like, say, Chrysler—that are already subject to corporate taxation. If the private equity partnerships were taxed at the corporate rate, they’d effectively be taxed twice—once at the op-co level, and once at the partnership level. To make things worse, they’d really be taxes three times, since distributions to partners are subject to capital gains taxes. It seems a bit extreme to tax the same revenue stream over and over again.

Today’s Wall Street Journal editorial page, however, says that this is exactly what the Blackstone Bill would do. “Under the Baucus-Grassley proposal, Blackstone’s investment income would be taxed first at a 35% corporate tax rate on, say, American Widget Company when it earned the profits; taxed again when those profits are passed on to Blackstone at another 35% corporate income tax rate; and then taxed a third time at a 15% capital gains tax when Blackstone distributes its earnings to partners and shareholders,” the Journal says.

The Blackstone Tax [Wall Street Journal]

* If you must know, one provision says all partnerships get taxed with the corporate rate. Another provision creates a list of about fifteen different types of entities that are exempt from this treatment. Private equity partnerships fall under the exception for entities deriving income from “passive type income”—which is income from capital gains. This means that the law treats them as “pass-through” partnerships, so that the taxes don’t hit the partnerships themselves but only the owners of the partnerships. Because of this the managers of the partnerships typically pay capital gains taxes, rather than ordinary income taxes, on the profits of the firm.

I’m about to re-report something from Reuters that’s going to blow your fucking mind: bankers do drugs. Yes, taking a cue from the New York Times, the news service notes that there’s a good chance the guy sitting next to you is coked out of his skull right now. No one’s quite sure what begets what—do bankers on blow (Ritalin, Adderall) make profits rise or do high profits cause banker to do blow (Ritalin, Adderall), but they’re pretty sure Wall Street’s constant, overbearing emphasis on making money is “keeping drug dealers busy…ruining careers, tearing apart families,” and causing genocide in the Sudan.

Morgan Stanley spokeswoman Jean Marie McFadden said, “To my knowledge, we have not seen an uptick in drug use,” which sounds incredibly convincing. Convicted drug dealer Juan Rodriguez noted that many of his (“former”) clients “were” Morgan Stanley bankers, who “never complained about the price of cocaine.” And why should they? Morgan Stanley’s Q2 net income jumped 40% from last year to $2.58bn or $2.45 a share. The results handily beat the consensus analyst estimate of $2.01 a share. Morgan Stanley’s Q2 revenue jumped 32% from last year to $11.52bn and beat the analyst estimate of $10.03bn.

Goldman Sachs, Lehman Brothers, Citigroup, JPMorgan & Chase Co. and Bear Stearns all declined to comment on their drug use.

A hiring manager at one of the reticent five, though, did helpfully point out that while new staff must take a urine test, new hires are allowed to choose when they would like to undergo the cup during a 45-day period prior to their start date. “Our drug test is not so much a test of whether you actually take drugs as it is an intelligence test to see if you can figure out how long it takes to get traces of the drug out of your system,” he said.

Looking to land a position at Goldman but metabolically absent minded? We’ve provided some info. Don’t say we never did anything for you.

Yesterday the Blackstone Group announced that it was fast-tracking its initial public offering, so that shares in the private equity group will start trading under the ticker symbol BX a week earlier than planned. So how did Blackstone co-founder Stephen Schwarzman spend the night before this big announcement? He went to a party.

As we mentioned earlier, Monday night the New York Public Library held it’s annual corporate dinner, and Schwarzman was the guest of honor. DealBreaker Senior Library Correspondent Scott Bressler reports from the party.

Monday night DealBreaker got me on the list for Steve Schwarzman’s bash at the New York Public Library. I was on the press list along with legends like Bill Cunningham from the NYT Sunday Style On The Street spread, as well as others from CNBC. Considering the media spectacle that good ole Stevie has made of himself lately, I’m surprised there was no giant platter of over-priced crab claws (though none of the waiters had squeaky shoes).

The first hour of the event was a cocktail party in Astor Hall (beautiful space for those who aren’t familiar with it). Of course everyone there, as members of our cities finest waspy elite, is a major contributor to the NYPL (and I’m not talking about sneaking in through the Young Lions on the cheap).

I snapped plenty of photos of The Man Himself, Mr. Schwarzman during the cocktail hour, and got a few of some of the other big-wigs such as Donald Marron, Jimmy Lee, and Sam Butler. Just as I was leaving, Maria Bartiromo, a speaker for the event, came in with her husband, Jonathan Steinberg.

Photos after the jump.

Schwarzman in the Spotlight at Library Gala [New York Sun]
Schwarzman: Doing It for the “Regular People” [Wall Street Journal]

The last minute effort by Bear Stearns to rescue its High-Grade Structured Credit Strategies Enhanced Leverage Fund seems to have collapsed. Moments before midnight last night, the Wall Street Journal’s Kate Kelly reported that Merrill Lynch was going to push forward with its plan to sell at least $850 million of mortgage-related securities it seized from the hedge fund. This morning the New York Post’s Roddy Boyd said that end had come for the fund. And now CNBC’s Charlie Gasparino is reporting that JP Morgan and Deutsche Bank have already begun selling collateral they seized from the hedge fund.

The securities were collateral assets for leverage the banks had extended to the debt-heavy fund. The fund has reportedly been battered by bad bets in collateral debt obligations and mortgage securities. The widely publicized trouble in the subprime sector helped make shorting subprime—which hedge funds did through a complex array of swaps and derivative products offered by investment banks—a popular and profitable bet late last year and earlier this year. But when banks reportedly began to ease credit terms on mortgage holders in a coordinated effort to stave off mass defaults and a meltdown in the market, many of these positions went bad for the fund.

[How leverage and bad directional betting crushed the fund, after the jump.]

The JPMorgan Corporate Challenge kicks off tonight in Central Park at 7:00pm with the first of two 3.5 mile races. The event, which started in New York in 1977, is now held in 12 cities on five continents with over 200,000 participants from 7,000 organizations.

The banks make up a large portion of the 15,000 race registrants. Here are the registration numbers for the top five:

Morgan Stanley – 1,605
JPMorgan – 1,450
Lehman – 800
Goldman – 550
Citi – its own version of the 1980 Olympics, boycotts on principle

Goldman limited its roster to 550 after almost 800 employees tried to register, according to the bank’s fitness center manager. Does anyone know why Goldman had to limit its registrants (and please tell me they had tryouts or cuts to determine who made the final 550)?

Last year, of the major banks, CSFB has the most outstanding individual performer - ’03 Harvard alum and track captain, John Traugott, who is an associate in the equity capital markets group. Traugott had the 2nd fastest time overall in the men’s division over the two races with a 17:48.

Karl Dusen of AIG posted the fastest overall time in the second race with 17:05 and Joseph Mcveigh of Morgan Stanley posted the 3rd best time with 18:18.

If anyone has any fun corporate challenge stories, or is planning to pull a Jeff Gillooly on John Traugott, please comment or drop a line to ‘tips at dealbreaker dot com.’

Wall Street Rivals Run for Charity, Bragging Rights and Beer [Bloomberg]