Citigroup considers $400bn asset sale (FT)
Citigroup plans to sell 1/5th of its assets, or $400bn worth of goods, as part of a major cost cutting initiative, according to FT. Evidently, the company feels it has "legacy" lines that need to be flensed. We love the use of the word legacy to basically rationalize any flailing operations. Something not doing well? Oh, it's a legacy business, might as well strip it out of your models. All that being said, don't expect CEO Vikram Pandit to announce a breakup of the business --- just a $400 billion sale, that's all.
Questions of Rent Tactics by Private Equity (NYT)
Sort of a classic NYT business section article here... Apparently, private equity firms that have bought into NYT housing developments have a business model that depends on a high degree of renter turnover -- i.e. folks in rent-controlled units leaving at a higher rate than in other buildings. And so tenants are claiming that renters of rent-controlled units are subject to various harrassment and whatnot. You can judge for yourself the situation, however this has to be one of the best/worst paragraphs we've seen in the paper: "Private investment funds have boomed in recent years, buying companies they considered undervalued in industries as diverse as communications, hotels and energy, streamlining operations and then selling them at a profit. For example, private equity firms have bought nursing homes, often slashing expenses and reducing staff to increase their profit." Really good example there.
Would making insider trading restrictions optional for corporations suffice? (Knowledge Problem)
This is a debate we've always enjoyed: why can't companies just say: "We allow our employees to trade on inside information, caveat emptor." Given the arbitrariness of current insider trading laws (you rarely, for example, see anyone hauled in for not selling shares based on inside info), this always seemed like it would work. The above post offers some interesting points to think on.
The 18-Cent Solution (NYT)
McCain and Hillary have been looking for an economist to support them on their plan to eliminate the federal gas tax. We've been figuring that one would eventually, you know, just to get some exposure, but for a long time, nobody did. Finally, Bryan Caplan (most known for his recent work "The Myth Of The Rational Voter") has done it, penning an op-ed in the NYT in support of the measure. It's tepid as hell, and it basically comes down to this: it's not the worst thing you could do. In other words, politicians have that urge just to do something, and usually that something is fairly awful. It wouldn't be hard for you to come up with a list of ten awful ways politicians might try to solve the gas problem. But, as Caplan explains: cutting gas taxes isn't really so awful, and if it precluded other measures, it wouldn't be so bad. Now let's see Hillary run to trot this guy out -- of course, making no mention of his recent book.
Comedy Central, Attell bang 'Gong' (Variety)
One of our biggest regrets is that we weren't around for the first Gong Show. So you can imagine our relief that it's evidently coming back.
The World's Best Chinese Food (WSJ)
It's in the Wall Street Journal, and it's Friday, so we're taking liberties... if you happen to know anything about the Opening Bell, you know that Chinese Food is one of the few loves in our lives, which is why this article talking about stuff like "purple lily roots with pumpkin", a dish you may find a Chinese restaurant in Beijing is totally awesome. Any readers of The 'Breaker going to Beijing for the Olympics this year? If so, check some of this stuff out (or other stuff) and take some pictures.
Merck Bails on Natural Products (In The Pipeline)
An interesting insider-ey (a word we've been seeing a lot lately) take on a move from Merck to dump its "natural products" business. Apparently the company had a small unit in Madrid for the last 50 years working on stuff, and, not surprisingly, it hasn't really gone anywhere. So after 50 years, seems like it's time to give it a rest.
Posted by guest , May 09, 2008 7:42AM
PE firms have no sense at all about the societal costs of their actions. The endless speculation in energy, food and housing will get a politican's attention and create some real stuff for pe's. Serves 'em right.
Posted by guest , May 09, 2008 8:15AM
I have a legacy that I need to get rid of
it's my
HUSBAND
Posted by guest , May 09, 2008 9:23AM
@8:15 - no long term investment strategy there huh?
Posted by mrpink , May 09, 2008 9:29AM
Hi Filomena!
-mrp
Posted by guest , May 09, 2008 9:29AM
@7:42,
You have no idea what you're talking about. PE shops buy companies and typically hold for 3-5 years. Commodities speculation would be the domain of hedge funds, prop desks, etc.
Even given that, speculation isn't what's driving the commodities markets - the couple of billion people in rapidly industrializing countries like Brazil, India and China and the weak dollar are the chief problems.
On the housing side, private pools of capital (both hedge funds and PE shops) are probably some of the least blameworthy. Some hedge funds bought up securitized debt, which actually provided liquidity to the market (a good thing), but other than that, both types of firm are blameless relative to lenders, investment banks, and the borrowers themselves.
Posted by guest , May 09, 2008 9:32AM
@9.29==what percent of soft commodities open interest are held by funds?
answer after the open.........
Posted by guest , May 09, 2008 9:54AM
@9:32,
A little over a third. Clearly they're contributing to vol, and to an extent on price. My primary issues were with (1) blaming PE for this, which is clearly erroneous to anyone who knows the distinction between PE and hedge funds and (2) the disporportionate amount of blame attributed to private capital for the issues we're having with energy and housing.
I'm less familiar with soft commodities, but do recognize that the speculative issues are more significant there, to the point of a dislocation between the price contracts are have been settling at and the actual delivery price of the underlying good. Clearly that needs to be addressed.
Posted by guest , May 09, 2008 9:54AM
@9.29 - actually, the holding period is closer to 2-3 years but since you're an expert, please tell me how much more debt and at what rate has been loaded on to these corps??
...and the open interest number is about 50%.......
Posted by Novice , May 09, 2008 10:03AM
@9:54 the pe whipping boy window expired last week when ep left. Talk about something not beaten to death, like Caplan's poison pill op-ed.
Posted by guest , May 09, 2008 10:06AM
@9:54,
Always thought 3 was the target, falling back to 4-5 if needed. Anyway, I'm not on the corporate LBO side of the business; I work in the real estate arm of a large PE shop - most of our deals are done at 60%-70% leverage on development redevelopment, at a 250-350bps spread over LIBOR. Stabilized assets may carry more debt, but it's tough to get over 80% now.
I assume your point was to demonstrate that I have no idea what I'm talking about. I hope you're now satisfied that that's not the case.
Where'd you get your 50% number? Last number I saw was ~35% in a Bloomberg article a few months back. I'm not surprised that the number moved up, but I am that it did by that much.
Posted by guest , May 09, 2008 10:26AM
Now is the time to buy real estate. They don't make it anymore. You'll always make more money so buy the most that you can in the best neighborhood you can. Interest rates won't always be this low! In fact, all my successful clients are taking the equity out of their homes and putting a small % down on 5 or 6 homes they can then rent out! They are in business!! It's the American dream. Get out of the "rent race" and start making yourself rich instead of the landlord!!
What? Oh, they say it's time for my Thorazine.....brb....
Posted by guest , May 09, 2008 10:28AM
The Gong Show!! Gene, Gene...the Dancing machine!! The Unknown Comic!!! Oh, man those were the days! They had a female pornstar as their on-air "hostess" for a while...Carol Conners or some such....(Google amongst yourselves...)
Posted by onetwo , May 09, 2008 10:39AM
"PE firms have no sense at all about the societal costs of their actions." Oh, you're right, we should just let distressed and poorly managed companies go bankrupt, that way no one is employed. Thanks for that deep insight, guest.
I'm hungover as hell. Who wants to fight?
Posted by onetwo , May 09, 2008 10:40AM
"PE firms have no sense at all about the societal costs of their actions." Oh, you're right, we should just let distressed and poorly managed companies go bankrupt, that way no one is employed. Thanks for that deep insight, guest.
I'm hungover as hell. Who wants to fight?
Posted by Anal_yst , May 09, 2008 10:46AM
Glad someone pointed that out 1-2...
...I like how Mr. Caplan has essentially resorted to defending the pols' suggestion of dropping the fed gas tax on the "lesser evil" argument. Of course, even that is premised on the fact that suspending the gas tax would be done independently and is mutually exclusive of any other subsequent action to "combat" fuel prices.
Reminds me of one inebriated night @ Comix when john oliver referred to me as the Drunken Economist when I tried to explain (while in no state to be doing so) basic econ to him, really strong, well-thought arguments...
Posted by HAM05 , May 09, 2008 10:51AM
1-2 ive been on hold with verizon for 14 minutes faking a conference call, i am ready for a brawl
Posted by guest , May 09, 2008 10:53AM
@10.40--please let us know what "distressed and poorly managed companies" pe firms have rescued and have gone on to succeed.
Also, let me know about what the debt levels were when you set them loose on the public.
Posted by guest , May 09, 2008 10:58AM
@10:53 And don't forget the unfunded pension liabilities that the public had to cover.
Posted by guest , May 09, 2008 10:59AM
I don't know what's greater comedy gold today: that the Gong Show is returning, or that Icahn wants to pay for Circuit City out of his own pocket.
Posted by guest , May 09, 2008 11:01AM
A good time to take note of a friend that bought, cleaned up and flipped houses from 2002-2005. The longer it took him to do the cleanup the more the houses appreciated. He didn't realize that it was the rising market, not his golden touch that was creating value. He learned fast and hard though with his 2007-vintage project.
Posted by StupidEquityGuy , May 09, 2008 11:04AM
1-2,
Please don't type so hard... some of us can still hear the banging on the keyboard from the wrong coast...
~SEG
Coffee futures should be going up right now... I am a human consumption machine...
Posted by Investorcluzo , May 09, 2008 11:15AM
wait, the market's open? holy fk! looks like my hangover took care of itself (no fightin' for me 1-2)...did I fall asleep and wake up in the 80's? speed racer in theaters and gene gene the dancin' machine back on the small screen (talk about back to the future).
http://www.youtube.com/watch?v=ACpNVD5GMUw
Posted by blndebnker , May 09, 2008 12:04PM
Maybe this was before my time, but who is Gene Gene the dancing machine?
Posted by StupidEquityGuy , May 09, 2008 12:04PM
Here is a good laugh @ my side of the street...
http://ftalphaville.ft.com/blog/2008/05/09/12924/how-many-hedge-fund-managers-does-it-take/?source=rss
~SEG
Posted by onetwo , May 09, 2008 12:24PM
@10:53 - I have a name, thank you very much. While I am not going to list the successful buyout companies (cheap cop out, i know-it's friday) I will say that your debt argument is hogwash (again, friday!).
@SEG - that FT article is ridiculous (not in a good way). No Gulfstream can break mach 1. Well maybe in the metric system they can. (that was a joke, i swear to god if someone calls me out for claiming there is a difference between US mach and euro mach I'll kill them--again, friday!)
@1059 - wtf is Icahn thinking?! Someone needs to send him a "sunk cost" white paper!
Posted by Investorcluzo , May 09, 2008 12:30PM
@blndebnker: gene gene was kind of like a foil to chuck barris on the gong show. he does a little dance and keeps everyone loose. definitely before your time (slightly before mine).
Posted by StupidEquityGuy , May 09, 2008 12:31PM
1-2,
It was also stolen by FT from a post earlier this week... and your right that whole Mach thing had to be a joke...
Hey its Friday and I am already pondering what kind of trouble to get into this weekend...
If my brain was working, I would be pondering a hostile takeover for fun... Because some public companies just need to have their COB fired.
~SEG
Posted by blndebnker , May 09, 2008 12:36PM
Thanks Cluzo. I'm going to have to youtube that when I get home.
Posted by Anal_yst , May 09, 2008 2:02PM
Not to mention that the g650 isn't available yet, at least not that I know of