• Morning News: November 18, 2010
    Posted by on November 18th, 2010 at 7:38 am

    Global Stocks Rise; Nikkei Gains 2.1%

    China Behind Chilling Drop in Commodity Prices

    London Stock Exchange Profit Gains 26%; to Offer Derivatives in 2011

    Irish Central Banker Says Rescue Loan Is Likely

    Beijing’s Focus on Food Prices Ignores Broader Inflation Risk

    General Motors Returns to NYSE After Raising $20 Billion in IPO

    Goldman Says to Buy Calls, Not Shares, in Intel, IBM

    Sears Loss Widens on Tepid Sales

    More Shoppers at Malls on Black Friday Weekend

    I Don’t Short Uptrending Markets

  • IPOs by the Numbers
    Posted by on November 17th, 2010 at 12:50 pm

    Tim Kildaze at the Globe and Mail lists the five largest global IPOs and the five largest U.S. IPOs:

    Top 5 Largest Global IPOs

    Agricultural Bank of China – China
    Size: $22.1 billion (U.S.)
    Date: July 2010
    Sector: Banks

    Industrial and Commercial Bank of China – China
    Size: $22.0 billion (U.S.)
    Date: October 2006
    Sector: Credit institutions

    American International Assurance Group – Hong Kong
    Size: $20.5 billion
    Date: October 2010
    Sector: Insurance

    Visa Inc. – U.S.
    Size: $19.7 billion
    Date: March 2008
    Sector: Other financials

    NTT Mobile Communications Network Inc. – Japan
    Size: $18.1 billion
    Date: October 1998
    Sector: Wireless technologies

    Top 5 Biggest U.S. IPOs

    Visa Inc.
    Size: $19.7 billion
    Date: March 2008
    Sector: Other financials

    AT&T Wireless Group
    Size: $10.6 billion
    Date: April 2000
    Sector: Wireless Technologies

    Kraft Foods Inc.
    Size: $8.7 billion
    Date: June 2001
    Sector: Food and beverage

    UPS
    Size: $5.5 billion
    Date: November 1999
    Sector: Transportation and Infrastructure

    KKR Private Equity Investors
    Size: $5.0 billion
    Date: May 2006
    Sector: Alternative financial investments

    The GM IPO has a shot of becoming #1. Here’s how it breaks down:

    * Total IPO and preferred offerings before overallotments: $19.3 billion to $19.77 billion. The midpoint would be $19.54 billion.

    * Total IPO and preferred offerings including all overallotments: $22.19 billion to $22.74 billion. The midpoint would be $22.47 billion.

    * Treasury total take from IPO and preferred offering: Up to $15.7 billion from common stock sales including overallotments and $2.1 billion from selling its Series A preferred shares to GM when the IPO is completed.

    * Common share price range: $32 to $33 per share

    * Common shares offered: 478 million shares

    * Optional underwriter overallotment: 71.7 million

    * Total common shares with overallotments: 549.7 million

    * Series B preferred shares price: $50 per share

    * Preferred shares offered: raised to 80 million

    * Optional underwriter overallotment: 12 million shares

    * Total preferred shares with overallotments: 92 million

    * Preferred shares proceeds: $4 billion

    * Preferred proceeds with overallotment: $4.6 billion

  • The Market Is Not a Market
    Posted by on November 17th, 2010 at 12:11 pm

  • The Battle for GM 1910-1915
    Posted by on November 17th, 2010 at 11:38 am

    Thanks to heavy demand, the GM IPO has been increased by 31% to 478 million shares.

    An overallotment and an offering of preferred shares may increase the total amount raised to about $22.7 billion. Agricultural Bank of China Ltd.’s $22.1 billion initial sale is the largest common-stock IPO in history.

    The initial sale, scheduled for today, will bring Chief Executive Officer Dan Akerson closer to his goal of returning the $49.5 billion GM received in a taxpayer bailout last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb at least 60 percent, Bloomberg data shows.

    One of the most exciting and rollicking periods in Wall Street history was the battle for control of GM between 1910 and 1915. Billy Durant had founded the company but was tossed out by the bankers in 1910. He then partnered up Louis Chevrolet to start Chevrolet. He soon bought him out, then bought a controlling interest in GM and by 1916 was president again. In 1914 shares of GM were going for as low as $37 each. Thanks to Durant’s raid and WW1, the stock got as high as $558 by 1915.

    In his battle to regain control, Durant used DuPont as an ally. This tactic was to become common in the 1980s. The problem was that by 1920, DuPont had control.

    Still, it’s a great story. Check out this NYT story from December 1915 when Durant finally gained control of GM.

  • Trading Volume in NICK
    Posted by on November 17th, 2010 at 10:53 am

    Trading volume in Nicholas Financial (NICK) has been pretty slow. Make that very slow. As in zero volume yesterday and none so far today.

    Yep, that’s real slow.

    Update: Oh Em Gee! 200 shares at $9.99!

  • Buffett Says “Thank You”
    Posted by on November 17th, 2010 at 10:47 am

    Here’s part of Warren Buffett’s “thank you” letter to Uncle Sam in today’s New York Times:

    When the crisis struck, I felt you would understand the role you had to play. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

    Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

    I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled.

    You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly.

    That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world.

    So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through — and the world would look far different now if you had not.

    Your grateful nephew,

    Warren

  • We Don’t “Make Anything” Anymore
    Posted by on November 17th, 2010 at 9:24 am

    One of the biggest myths about the U.S. economy is that we don’t “make anything” anymore. This simply is not true. The U.S. is a manufacturing powerhouse.

    The difference is that fewer people are employed in manufacturing. Productivity and output have soared. Since 1983, manufacturing production has doubled.

  • Six Losses in Seven Sessions
    Posted by on November 17th, 2010 at 8:42 am

    The stock market has now fallen for six of the last seven sessions. Yesterday was particularly ugly as the S&P 500 dropped 19.41 points or 1.62%. The index is now 4.66% off the high reached the Friday before last.

    I had thought the market might pull back in the wake of Quantitative Easing, but instead, the market rallied when QE2 was announced on November 3rd. I was either wrong or premature. In any event, I still believe the market is very inexpensive. Let me explain what’s been happening.

    There’s been a slow exodus out of the long end of the Treasury yield. Yesterday, the yield on the 30-year Treasury got as high as 4.40%. That’s a 94-point jump from the recent low reached on August 25th.

    Overall, this is a good thing. First, it shows that investors are turning against overpriced bonds and finding value in stocks. Just look at how many blue chip stocks have dividend yields that compare favorably with 10-year Treasuries.

    Second, investors are now willing to take on riskier assets. During the recent unpleasantness, investors crammed themselves into anything and everything that appeared to be safe. As a result, all assets that were perceived as even slightly below “bulletproof” were tossed overboard. That’s starting to correct itself.

    This is why growth has been leading value, why small-caps have been leading large, why cyclicals have been leading consumers and why stocks have been leading bonds. Very recently, we’ve seen a large shift away from mid-term bonds like the 5-year Treasury which is up 37 basis points over the last eight sessions.

    I caution you not to be rattled by the past few days. The stocks on the Buy List are very strong. In particular, stocks like AFLAC (AFL) and Reynolds American (RAI) are fairly cheap. Wright Express (WXS) also looks good. Yesterday’s close was at $43.12 which is a very good price.

    Interestingly, gold got hit hard yesterday. The contract for December delivery dropped over $30 per ounce which is 2.2%. This could mean that a Fed rate hike will come sooner than people think.

    The good news today is that inflation continues to be tame. Headline inflation was up 0.2% last month and core inflation was flat. Wall Street has been expecting rises of 0.3% for headline and 0.1% for core. I just don’t get the nervousness over hyperinflation. It may come one day, but for now, the statistics say inflation isn’t a problem.

    Here’s a very good clip of Tadas Viskanta on Stock Twits TV explaining that the stock market might have rallied over the past few weeks because things are really looking better.

    (HT: Jeff Miller)

  • Morning News: November 17, 2010
    Posted by on November 17th, 2010 at 7:45 am

    US Stock Futures Up Before Housing, CPI Data

    Fed May Hesitate on More Easing After Critics Question Mandate

    Consumer Prices in U.S. Probably Rose in October on Gasoline

    Currency Fight With China Divides U.S. Business

    Ireland Prepares to Open Books as EU Weighs Help for Banks

    China Acts to Slow Rise in Food Prices

    GM Increases IPO Size as Treasury, UAW Sell More Shares

    Roche Takes Knife to Costs, Slashes 4,800 Jobs

    Microsoft Investors Not Happy

    U.S. Sets 50 Bank Probes

    Managing Money is Hard…Ask Peter Thiel

  • The Muni Meltdown
    Posted by on November 16th, 2010 at 1:16 pm

    Check out the drop-off in the Muni Bond ETF (MUB):

    This chart is slightly deceptive. The ETF is normally very stable. We’re only talking about a drop of a few percentage points, but it appears more dramatic when compared with its normal stability.