MasterFeeds: November 2012

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November 28, 2012

Costco leader Wotherspoon $7 dividend: Companies Shelling Out Billions to Beat the 'Fiscal Cliff'

Companies Shelling Out Billions to Beat the 'Fiscal Cliff'

Companies are racing the clock to hand out billions in special dividends before year end—and some of them are taking on debt to do it.

Full Story:

Egypt's Defining Moment | Stratfor

We are now facing a defining moment of Egyptian history. Analysts are constantly proclaiming defining moments, but this is certainly one.

The Egyptian military has held power since 1952 when Gamal Abdul Nasser overthrew the Egyptian monarchy. From then until the unrest known as the Arab Spring, the military's power went unchallenged. After the fall of Hosni Mubarak and his replacement by the Supreme Council of the Armed Forces -- a military junta -- it appeared that while Mubarak had fallen, the military regime remained in place. The military held elections and Mohammed Morsi, known as a moderate member of the Muslim Brotherhood, was elected president.

On the surface, this would appear to have meant that power had passed from the military into the civilian hands of the Muslim Brotherhood. But it was unclear whether Morsi -- the formal president -- held power or the military actually still had control.

Read the rest of the article online: Egypt's Defining Moment | Stratfor

-- The MasterFeeds

French threaten to nationalise #Mittal #steel operations in #France

French threaten to nationalise Mittal steel operations in France

·         European harmonisation does not seem to apply when French jobs are at stake

·         There is massive unemployment in Spain, Greece and in other Eurozone states but it appears that unemployment in France is unacceptable

·         We have not seen Spain or Greece threaten to nationalise any industry

·         Perhaps other Eurozone countries should take control of key industries to reduce unemployment and perhaps to pay down debt

·         The Mittal assets are in Lorraine, an area which was fought over during the 1870 Franco Prussian war and the WWI

·          We knew that Francois Hollande was socialist but we did not know he was communist

From S.P. Angel's Morning note

November 26, 2012

Bruce #Berkowitz: The return of a star fund manager - $FAIRX

Bruce Berkowitz and his Fairholme Fund have made a comeback - relying on the same stocks that cost his fund so dearly in 2011.

Bruce Berkowitz
FORTUNE -- Only a handful of mutual fund managers have ever had the sort of epic run that Bruce Berkowitz (and his investors) enjoyed. In the first decade of this century, his 13.2% annual returns obliterated the S&P 500 (SPX), which averaged 1% yearly losses. He was crowned U.S. stock manager of the decade by Morningstar, and Fortune anointed him "the Megamind of Miami" in a late-2010 profile. Then came 2011. Berkowitz's Fairholme Fund (FAIRX) plunged 32% amid huge losses in stocks like AIG, Sears, and Bank of America. Clients yanked $7 billion, and critics said Berkowitz, 54, was finished. But instead of retreating in 2012, he doubled down on his favorite stocks. Today he looks like a genius again: Fairholme has roared to a 37% return this year, tops among U.S. stock mutual funds. Is his comeback for real? Berkowitz made his case by phone from his home near Miami. Edited excerpts:

You were criticized last year for poor performance. Was that fair?

I think it's fair. What's not fair is to believe that a manager or a businessperson is in such control of companies that they can control any one-year period or two-year period. I've not seen it done. There's a reason Warren Buffett judges Berkshire Hathaway's (BRKA) book value against the S&P 500. He doesn't use Berkshire's stock price. My question to you is, Can someone like me or anyone else avoid a 2011?

What were you expecting?

I always knew we'd have our day of negative performance. I'd be foolish not to think that day would arrive. So we had billions in cash, and the fund was chastised somewhat for keeping so much cash. But that cash was used to pay the outflows, and then when the cash started to get to a certain level, I began to liquidate other positions.

Was 2011 beyond your worst-case scenario?

The down year was definitely not outside of what I thought possible. I was not as surprised by the reaction and the money going out as I was by the money coming in. When you tally it all up, we attracted $5.4 billion in 2009 and 2010 into the fund and $7 billion went out in 2011. It moves fast.

AIG's stock, which makes up 40% of your fund, has returned 50% this year. What does it need to do to deliver the 20% a year you think is possible? Will Hurricane Sandy claims prevent that?

It's too soon to tell, but it's not critical. AIG (AIG) is priced for 10 Sandys. More broadly, the company needs to reduce expenses, which will naturally occur. There's been a huge amount of time and energy placed in dealing with the Federal Reserve and the U.S. Treasury, and building new information systems. So you'll start to see significant cost reductions over time.
They're also moving away from low-frequency, high-severity insurance, which, in my opinion, is picking up pennies in front of a steamroller. But I think Peter Hancock, who runs their property-and-casualty business, understands that the one-in-100-year storm happens every five years.

Lately you've begun talking about the real estate value of Sears, which accounts for 10% of your fund.

The value of Sears (SHLD) [which trades near $60] would be over $160 a share if the land on the books was fully valued. You can look back at recent transactions and ask a question: How can Sears close stores and generate hundreds of millions of dollars of cash? It gets at the inventory. The liquidation value of its inventory approaches its stock price. Forget the real estate.

You make Sears sound like a liquidation play, not a retail recovery.

The retail recovery is a potential upside. Regardless, you'll see gigantic cash flows from the closing of locations, the pulling-out of the cash from inventory, work in process, and distribution centers. They're not idiots when it comes to real estate. They understand that today's standalone store can be tomorrow's multi-use hotel/residential-retail center. I think Eddie Lampert will end up being one of a few unbelievable case studies on what it means to be a long-term investor.

You own shares of both Bank of America and MBIA. When will they settle their multibillion-dollar lawsuit?

Bank of America's legal issues are the only thing stopping its rise right now. [MBIA's suit accuses BofA (BAC) of fraud related to bad home loans underwritten by BofA's Countrywide unit; BofA denies the allegations.] I know BofA doesn't want shareholders to overpay, but I'm one large shareholder who says, "Settle up!" And yes, it's in part because I'm a large MBIA (MBI) shareholder, but it's also because it's time to move on. I've e-mailed [BofA CEO] Brian Moynihan and said, "Settle." BofA is now the best capitalized bank in the U.S. It generates $5 billion of cash every three months. Its book value is $20 a share, but the stock trades near $10. Everything else is pretty obvious. Moynihan has done a really good job of moving to the Wells Fargo (WFC) model: client-centered. BofA has a huge franchise in the form of a trillion-dollar deposit base. They are America's bank.

Your portfolio is concentrated [see chart, above]. If you get new money to invest, will you buy different stocks?

Are there other investments out there? Yes. Better than what's in the fund today? No.
This story is from the December 3, 2012 issue of Fortune.
 Bruce Berkowitz: The return of a star fund manager - The Term Sheet: Fortune's deals blog Term Sheet

November 16, 2012

The Hostess Liquidation: A Curious Cast Of Characters As The Twinkie Tumbles | ZeroHedge

in many ways Hostess is now indicative of that just as insolvent larger corporation, the USA, whose insurmountable balance sheet liabilities will be the eventual catalyst for its collapse, but only once the Income Statement and the Cash Flow sheet join in. For now, the Fed provides the flow needed to avoid the day of reckoning, but everything ends eventually
The Hostess Liquidation: A Curious Cast Of Characters As The Twinkie Tumbles | ZeroHedge

Perhaps one of the most interesting aspects of the just announced Hostess liquidation, one that will be largely debated and discussed in the media, or maybe not at all, is the curious cast of characters and the peculiar history of this particular bankruptcy. Some may not be aware that the company's Chapter 11 (or colloquially known as 22) bankruptcy filing this January, which today became a Chapter 7 liquidation, was the second one in the company's recent history, with Hostess, previously Interstate Bakeries, emerging from its previous protracted multi-year bankruptcy in 2009. What is curious is that its emergence had all the drama of a anti-Mitt Romney PAC funded thriller, with a PE firm, in this case Ripplewood holdings, injecting $130 million in order to obtain equity control of Hostess as it was emerging last time. There were also more hedge funds, investment banks, strategic buyers, politicians involved in this particular story than one can shake a deep fried numismatic value Twinkie at. More importantly, however, as America has been habituated following the last season of the reality TV show known as the presidential election, if Private Equity then "bad." Only this time there is a twist: because it wasn't really PE that was the pure evil in the Obama long-term campaign, it was associating PE with Republicans, and thus: with jobs outsourcing. And here comes the Hostess twist: because Tim Collins of Ripplewood, was a prominent Democrat, a position which allowed him to get involved in the first bankruptcy process in the first place, due to his proximity with the Teamsters' long-term heartthrob Dick Gephardt (whose consulting group just happens to also be an equity owner of Hostess). In other words, the traditional republican-cum-PE scapegoating strategy here will be a tough one to pull off since the narrative collapses when considering that it was a Democrat who rescued the firm, only to see it implode in a trainwreck that has resulted in the liquidation of a legendary brand, and 18,500 layoffs.
But it only gets better. Because the full cast of characters involved here is quite stunning, as David Kaplan summarized so well recently:
Ripplewood is run by Tim Collins, 55, who's been at the center of other famed PE transactions. Known as a brilliant capitalist-philanthropist-networker, he's an eclectic character: a Democrat in an industry of Republicans; an Adirondack enthusiast dreaded by pheasant and fish; a board member at the Yale divinity and business schools; and someone who took a year at 31 to work at a refugee camp in the Sudan. Ripplewood orchestrated the $1.1 billion turnaround in 2000 of the Long-Term Credit Bank of Japan, which marked the first time that foreign interests controlled a Japanese bank. (Collins made the cover of Fortune Asia for it.) The bank was renamed Shinsei, and in 2004 it had a lucrative initial public stock offering. Far less fortunately, in 2007 Ripplewood acquired Reader's Digest -- and saw its $275 million investment vanish in Reader's Digest's bankruptcy filing in 2009. (Collins reportedly had visions of merging Reader's Digest with the magazine division of Time Warner (TWX), which owns Fortune.)
Ripplewood's foray into Hostess was partly enabled by Collins's connections in the Democratic Party. He wanted to explore deals with union-involved companies and sought the help of former congressman Gephardt, who in 2005 founded the Gephardt Group, an Atlanta consulting firm that provides "labor advisory services." In his 2004 presidential bid, Gephardt -- whose father was a Teamsters milk truck driver -- was endorsed by 21 of the largest U.S. labor unions; in 2003, Collins was one of 19 "founding members" of Gephardt's New York State leadership committee. (Today, Ripplewood and Hostess are listed online as major clients of Gephardt's consulting group, which is also an equity owner of Hostess.) Back when Hostess was coming out of the first bankruptcy, Gephardt's credibility with both Ripplewood and the Teamsters gave them each a little more room to break bread.
During this first bankruptcy, Hostess was almost sold. In 2007 it warded off a $580 million bid from its biggest competitor, Bimbo Bakeries USA. Bimbo Bakeries USA is part of Grupo Bimbo, the Mexican baking giant that owns such brands as Sara Lee, Entenmann's, Freihofer's, Arnold, Boboli, Ball Park Buns, and Thomas' English Muffins. Joining Bimbo in the bid were the union-friendly investment arm of supermarket titan Ron Burkle and the Teamsters themselves.
Hostess was able to exit bankruptcy in 2009 for three reasons. The first was Ripplewood's equity infusion of $130 million in return for control of the company (it currently owns about two-thirds of the equity). The second reason: substantial concessions by the two big unions. Annual labor cost savings to the company were about $110 million; thousands of union members lost their jobs. The third reason: Lenders agreed to stay in the game rather than drive Hostess into liquidation and take whatever pieces were left. The key lenders were Silver Point and Monarch. Both are hedge funds that specialize in investing in distressed companies -- whether you call them saviors or vultures depends on whether you're getting fed or getting eaten.
Based in Greenwich, Conn., Silver Point was founded in 2002 and has approximately $6.5 billion under management; its two co-founders are 49-year-old Edward Mulé and 47-year-old Robert O'Shea, both former Goldman Sachs (GS) partners. Silver Point helped bail out Krispy Kreme Doughnuts, Delphi, CIT Group, and various TV stations. Monarch, based in Manhattan, was created in 2008 as a spinoff from the Quadrangle Group. It reportedly has more than $3 billion under management; among its three co-founders are 52-year-old Michael Weinstock and 48-yearold Andrew Herenstein, both formerly of Lazard. Monarch has invested in Eddie Bauer and the Texas Rangers. (In 2010, after Herenstein sent a letter to baseball teams warning them not to approve a sale of the Rangers "at a price below fair market value," the letter became public, and the Dallas Morning News ran this ominous blog headline: MONARCH ALTERNATIVE CAPITAL THREATENS BASEBALL.)
Silver Point and Monarch, along with about 20 other lenders, owned about $450 million of Hostess secured debt at the time of the bankruptcy filing in 2004, according to court records. Remarkably, though -- given that Hostess's financials are now supposed to be an open book in federal bankruptcy court -- it's unclear how much the lenders actually paid for those notes. But it's presumably less than face value. Opportunistic investors like Silver Point and Monarch commonly buy distressed debt at a considerable discount. Their strategy: Invest in fundamentally "good" companies that have "bad" capital structures brought about by overborrowing, bankruptcy, or other corporate stresses.
Neither the specific amount put up by each investor nor the percentage of the total debt is public record (In re Hostess Brands, Case No. 12-22052). So it's impossible to know for sure how much "skin in the game" the creditors have. But according to sources with knowledge of Hostess's debt structure, Silver Point owns about 30% of the debt; Monarch, also about 30%; and the other lenders combined own the remaining 40%. Clearly, it was Silver Point and Monarch, along with Ripplewood, that had the biggest bets going forward.
Confused yet? Here it is summarized in a schematic:

November 15, 2012

Guess What They Are Not Cutting In The Fiscal Cliff... | ZeroHedge

If entitlements are not cut, there is no way the US will get out of their fiscal mess. 


Guess What They Are Not Cutting In The Fiscal Cliff...

Submitted by Simon Black of Sovereign Man blog,
In his farewell address to Congress yesterday, Ron Paul blasted the dangers of what he called 'Economic Ignorance':
"Economic ignorance is commonplace. . . Believers in military Keynesianism and domestic Keynesianism continue to desperately promote their failed policies, as the economy languishes in a deep slumber."
He's dead right. Around the world, economic ignorance abounds. And perhaps nowhere is this more obvious today than in the senseless prattling over the US 'Fiscal Cliff'.
Here's the deal: You may remember the Debt Ceiling debacle of 2011. At the time, the US government was about to breach its debt ceiling, and there was an embarrassing standoff between Congress and President Obama.
As part of their eventual compromise, the debt ceiling increased by $400 billion in August 2011... then again by another $500 billion five weeks later... and finally by another $1.2 TRILLION twenty weeks after that.
In return, President Obama signed into law the Budget Control Act of 2011. The law stipulates that, unless another compromise is reached, a series of tax increases and budget cuts will automatically take place on January 1, 2013, including the expiration of the Bush tax cuts and the temporary 2% payroll tax holiday, plus new taxes related to Obamacare.
They call this the 'Fiscal Cliff' because everyone is terrified that all the budget cuts and new taxes will bring the US economy to its knees once again.
I've spent days analyzing the bill... and frankly, it's a joke. You can read the 200+ pages yourself if you like, but here are the important points--
As we've discussed before, US government spending falls into three categories.
  1. Discretionary spending is what we normally think of as 'government.' It funds everything from the military to Homeland Security to the national parks.
  2. Mandatory spending covers all the major entitlement programs like Social Security and Medicare.
  3. Then there's interest on the debt, which is so large they had to make it a special category.
The latter two categories are spent automatically, just like your mortgage payment that gets sucked out of the bank account before you have a chance to spend it. The only thing Congress has a say over is Discretionary Spending. Hence the name.
But here's the problem-- the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest. In Fiscal Year 2011, for example, the US government spent $176 billion MORE on debt interest and mandatory spending than they generated in tax revenue.
In Fiscal Year 2012, which just ended 6 weeks ago, that shortfall increased to $251 billion. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion.
This is why the Fiscal Cliff is irrelevant. The automatic cuts that are going to take place don't even begin to address the actual problem; they're cutting $110 billion from the discretionary budget... yet only $16.9 billion from the mandatory budget.
Given that the entire problem is with mandatory spending, slashing the discretionary budget is pointless. It's as if the US economy is a speeding train heading towards a ravine at 200 mph, and the conductors are arguing about whether they should slow down to 150 or 175.
Oh, and there's just one more problem.
The government thinks that they will collect a few hundred billion dollars more in tax revenue when all of these new taxes kick in. Again, wishful thinking.
In the six+ decades since the end of World War II, tax rates in the US have been all over the board. Yet during this time, the US government has only managed to collect roughly 17.7% of GDP in tax revenue.
Conclusion? Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. The only way to increase tax revenue is for the economy to grow... and higher tax rates do not pave this path to prosperity.
Ron Paul was spot on. Economic ignorance abounds. And all the Talking Heads in the mainstream media blathering away about the Fiscal Cliff are only reinforcing his premise.
Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.

Guess What They Are Not Cutting In The Fiscal Cliff... | ZeroHedge

-- The MasterFeeds

This week's #Economist cover on #France

This week's #Economist cover on #France
This week's #Economist cover on #France  on Twitpic

This week's #Economist cover on #France

November 14, 2012

Hints of Disunity Among #Greece's International Lenders #IMF #EU

In an unprecedented show of disunity Tuesday, International Monetary Fund head Christine Lagarde clashed publicly with Luxembourg Prime Minister Jean-Claude Juncker, the chair of the Eurogroup of finance ministers, over plans for handling Greece's financial woes. While the European Union is making little progress toward resolving its internal disagreements, negotiations with outside institutions such as the IMF will prove even more complicated since such players have interests that extend beyond the preservation of Europe's status quo.

Hints of Disunity Among Greece's International Lenders

November 9, 2012

Africa Calling: #Brazil in #Africa: A new Atlantic alliance | The Economist

In 2001 Brazil invested $69 billion in Africa. By 2009... [it] had swelled to $214 billion.

Africa Calling

A new Atlantic alliance

IN THE sweaty heat of northern Mozambique, Vale, a Brazilian mining giant, is digging up coal at its mine near the village of Moatize. A 400,000-tonne mound sits ready to burn. The mine can churn out 4,000 tonnes an hour but the railways and ports cannot cope. Vale is working to improve a line through Malawi to take the coal for export. OAS Construtora, another Brazilian firm, has signed a deal with the miner to build part of a new port at Nacala, 1,000km (620 miles) to the north-east, to do the same.
The continent is an important part of Vale’s future, enthuses Ricardo Saad, the firm’s Africa boss. He is not alone in his excitement about Brazil’s prospects. Relations with Africa flourished during the presidency of Luiz Inácio Lula da Silva. He travelled there a dozen times and African leaders flocked to Brazil. His zeal was in part ideological: he devoted much of his diplomacy to “south-south” relations—at the cost, critics say, of neglecting more powerful (and richer) trade partners, such as the United States.
Lula stressed his country’s “historic debt” to Africa, a reference to the 3.5m Africans shipped to Brazil as slaves. Outside Nigeria, Brazil has the world’s biggest black population. Dilma Rousseff, Brazil’s current president, is continuing those policies—though with more emphasis on how the relationship benefits Brazil. There are many ways that it can. Africa needs infrastructure and Brazil has lots of construction firms. Africa sits on oil and minerals in abundance; Brazil has the firms to get them out. Its agribusiness giants are also eyeing up Africa. If the continent’s economy continues to grow as it has in recent years, it will produce millions of customers much like Brazil’s new middle class.
Brazilian businesses seem keen. In 2001 Brazil invested $69 billion in Africa. By 2009, the latest figures available, that had swelled to $214 billion. At first Brazilian firms focused their efforts on Lusophone Africa, Angola and Mozambique in particular, capitalising on linguistic and cultural affinity to gain a foothold. Now they are spreading across the continent.
So far a few large firms dominate. Vale’s coal mine in Mozambique is its biggest operation outside Brazil. Odebrecht has been building things in Africa since the 1980s. Early on it was involved in construction of the vast Capanda dam in Angola. It erected the country’s first shopping mall in the capital, Luanda. In Ghana, where demand for homes is so fierce that tenants have to pay up to two years’ rent in advance, OAS, a contractor of Camargo Corrêa, a big conglomerate, is putting up social housing.
Andrade Gutierrez, another construction firm, works on everything from ports to housing and sanitation projects in Angola, Algeria, Congo and Guinea. Petrobras, Brazil’s state-owned oil behemoth, is already pumping oil in Angola and Nigeria and is on the hunt for more in Benin, Gabon, Libya, Nigeria and Tanzania. Consumer companies are setting their sights on a growing market, too. O Boticário, a Brazilian cosmetics firm, has been peddling its products in Angola since 2006.
Brazil v China
Since Brazil cannot compete with the likes of China in the scale of its investment, it has to offer something extra: in particular, technical expertise. With similar climates, agriculture has been a fruitful field of collaboration. In 2008 Embrapa, a Brazilian agricultural-research institute, set up an office in Ghana. Through Embrapa, Brazil has provided technical assistance to the cotton industry in Benin, Burkina Faso, Chad and Mali. Brazilian companies that produce soya, sugar cane, corn and cotton were sniffing out investments in Tanzania earlier this year.
Brazilian firms hope that their reputation will ensure that opportunities keep coming. They are keen to distinguish themselves from competitors, especially the Chinese. They do not want to be seen as grabbing everything they can, says Rodrigo da Costa Fonseca, Andrade Gutierrez’s president in Africa. Whereas Chinese firms are lambasted for their working practices, their Brazilian counterparts emphasise that they play by the rules, are good employers and want to build enduring relationships by offering development aid as well as private investment.
In particular, Brazilians stress that in Africa they employ Africans (Chinese firms are often criticised for shipping in their own people). Around 90% of Odebrecht’s employees in Angola are locals, as are 85% of Vale’s employees in Mozambique.
The Brazilians have not managed to avoid all criticism. Vale has come under fire for its resettlement of over 1,000 families to make way for its coal mine. Most have been moved to a brand-new village at Cateme, 40km away from Moatize. Disgruntled villagers say the cost of living has soared because of the added expense of getting to Tete, the provincial capital. The ground is less fertile and water less plentiful at the new location, say inhabitants, and the houses provided by Vale are shoddily built. In January angry villagers blocked a nearby railway line in protest.
Vale says it is dealing with these problems—fixing the houses and putting on a bus into town. The company is paying the price for being first in, says Altiberto Brandão, who runs Vale’s mine at Moatize. Vale has a 35-year concession so it needs to keep locals on its side: “we don’t want 35 years of problems,” Mr Brandão insists.
Brazil is still enjoying its honeymoon in Africa, says Oliver Stuenkel of the Global Public Policy Institute, a think-tank. Still, Brazil should learn from the mistakes of others, he says. With its prominence in mining, there is always a danger that Brazil is seen as a new colonial power. Though its presence is growing, it is still paltry compared with China’s. Unlike China, Brazil does not need Africa’s resources but is more interested in diversifying its markets. There is no construction in Europe—there is nothing left to build there, laughs OAS’s Africa head, Leonardo Calado de Brito. “Africa is the place to be.”

See the article online here:   Brazil in Africa: A new Atlantic alliance | The Economist

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