Inflation: What about my freaking "comfort zone"?

Again, it was folly on parade this morning as I tuned into CNBC America here in London. The U.S. Commerce Department said that "Core consumer prices" had increased just 0.1% as was expected in May. What was clearly important to the folks on CNBC was that the "tame" year-over-year rate of just 1.9% in the past 12 months, falls within the Fed's unofficial 1% to 2% "comfort zone." To which I say, what about my freaking "comfort zone"? I know, especially here in London, that my "core inflation rate" is way outside of my own comfort zone.....Heely's (HLYS) pulled its secondary offering due to "unfavorable market conditions"? A re you kidding me--with the Dow, S&P and Nasdaq all within a percent or two of its all-time highs (Dow & S&P) or 52-week high for the Nasdaq? People have totally forgotten what "unfavorable" market conditions are like....Also noteworthy, as a read on the amount of fear, or lack there of, markets in the U.S. were mostly undeterred as it concerned the news across town here in London and with crude prices up another $1/barrel this morning, markets appeared to not give a rat's a---. Even though I'm quite sure a reversal of $1/barrel in crude prices would be another reason to throw a rager. All U.S. Indexes shot higher right out of the gate this morning, presumably because the long awaited release of Apple's (AAPL) iPhone is deemed good for the entire planet....But being the end-of-the-quarter, I want to point out a confluence of supposedly bullish "carrots" that will quickly fade into the night. Of course, being the end-of-the-quarter, there has been the usual bout of "tape-painting" that has added to the artificial buying of stocks. That creates an artificial overhang of supply heading into July. The latest Fed meeting is already a day behind us. Of course, this assumes that the Fed is usually market friendly, which I believe to be the case. The current version of the Fed, just as the Greenspan version, is keenly aware of how their comments affect asset values in a highly leveraged asset-based economy. That is behind us. One of the silliest lead-ups to a product roll-out, Apples's iPhone, is now history as of Monday. And probably most importantly, there is every sign in the world that housing and mortgage related issues continue to deteriorate just as we've also seen a peak in debt-financed private equity and M&A activity. The obnoxious lead-up to Blackstone's (BX) IPO last week had all the markings of a peak for private equity--and is now at a discount to its IPO price. In a nutshell, things have aligned themselves pretty nicely for what should be the beginning of at least a correction and maybe more....Late in the day, word that the SEC has requested documents from Bear Stearns and their "High Grade" hedge funds brought an abrupt end to the day's giddiness. Whether or not the toothless SEC and Christopher Cox decides to get to the bottom of the CDO/Hedge Fund chicanery remains to be seen. But if for some reason they feel it necessary to excessive some "oversight" on this mess, a few days or weeks before it goes "Enron" on them, it does have the potential to get very interesting.

Fed Watch: A joke that CNBC doesn't get

"Fed Watch" on CNBC is such a joke. I can't believe these guys treat the FOMC's post-meeting comments as if its these folks are omnipotent. The fact is, the world's major central banks and monetary policy is rudderless and woefully off course. These folks have blown such a massive credit bubble that they have no choice but to "manage it". Meanwhile, the folks at CNBC treat its post-meeting comunique as if they're parsing the words of a savant...I continue to watch for signs for when and if the market is going to began pricing-in serious problems accruing within the consumer electronics food chain. Novellus (NVLS) and LSI Logic (LSI) both guided down. There is almost no empirical evidence that suggests that this sector is improving fundamentally. In fact, I see quite the opposite. This occurs even as a day doesn't seem to go by now that the group doesn't get upgrades from the same clueless analyst community that charmed a few billion dollars into the Internet bubble a few years back....The second-to-last day of trading for the quarter, regardless what the Fed said or did, and regardless that final GDP came in at the lowest in four years; and regardless what we heard from Beazer Homes (BZH), KB Homes (KBH), Best Buy (BBBY) and the fore mentioned warnings from two more semiconductor-related companies---stocks pretty much held their own.

End of quarter, "tape painting" abounds

Come the end of another quarter, come another unsavory, dishonest practice that the Securities and Exchange Commission (SEC) opts not to be concerned with; that practice being the art of “painting the tape.” “Tape painting” involves the accumulation of stocks by "manager’s of other people’s money" (MOPS) in those companies that have been performing the best so that they can show how smart they were last quarter when statements are printed and mailed to clients. Almost like clockwork, markets often begin to get a nice bid starting on the second or third-to-last trading day of each month and quarter; with ends-of-quarters, for obvious reasons, usually seeing more exaggerated moves. And today, given the dearth of any obvious catalyst, except maybe tomorrow’s FOMC meeting, markets began to levitate around 1:30 PM anyway. Thank god that 3.6% correction in the S&P 500 is now behind us. The typical 30-something hedge fund manager must have had nightmare-ish visions of working well into their late-30s…..Dutch supermarket Royal Ahold, postponed its sale of $650 million in bonds that was slated to finalize its $7.1 billion buyout by the equity firms Kohlberg Kravis Roberts and Clayton Dubilier & Rice. There are now accumulating signs that indigestion has set-in on the private-equity bubble….. Best Buy (BBY) said that it would open more North American stores than previously planned, even though they recently cited sluggish consumer spending as a contributing factor for its most recent disappointing earnings report. It also stated its intentions to buy back $5.5 billion in stock and raise its dividend by 30 percent. Its current yield of less than 1-percent makes a 30% increase in that sound good even though it moves the yield to somewher around 1.2%. Of course, given that the company has just $2.8-billion of cash and short-term investments currently on its balance sheet, we’re witnessing yet another financial engineering project., ala IBM, Xilinx, ASML and NSM. For its efforts though, Best Buy was up a nifty $1.68/share….The Wall Street Journal’s front page story today was titled, “How Wall Street Stoked The Mortgage Mess.” Adding to the recent Bear Stearns’ hedge fund and CDO angst, was news that Durable Goods orders fell off a cliff last month. Of course, when the world’s financial system appears to be teetering, possibly, on some sort of potentially debilitating “credit event,” given the unfolding Bear Stears (BSC), CDO and subprime stories in recent days---the obvious thing to do is to buy tech stocks and sell gold and silver mining companies. Don’t ask me the logic behind recent market action, but that’s what has been happening to a more or less degree and today’s ramp in semiconductor shares can only be explained by the fact that client statements go out after tomorrows close. I believe a potential explosive “paired trade” opportunity is developing as the quarter is coming to a close—to go long gold, silver, and miners and go short semiconductors and financials….As an aside, the fact that Blackstone Group (BX) has now traded at a pretty nice discount to its Friday IPO price (as low as $29.13)—a 6% discount to its Friday IPO failed to help the MOPS (managers of other people’s money) draw on that particular clue and what it might mean for this markets only real energy source, liquidity and tons of it—at least today. The Dow finished up a chunky 90-points and the tech-heavy Nasdaq added a sprite 31-points. Tomorrow is the FOMC and that merry band of misfits.

Bear Stearns: We got our backs

Today certainly had that feel of a market wanting to deteriorate. If it weren't for my protestations of wanting explain every "unknown" on a conspiracy, it pretty much felt as if someone was standing there with its mouth wide open swallowing-up all the supply anyone wanted to unload into an otherwise sick feeling market. It felt like a " breakeven" was being aggressively defended. Both the S&P 500 and the Dow Industrials “kissed” breakeven on the day, not once but three times throughout the day. Each time it was met with a flood of buy programs keeping damage well under control. The last several days has been a bit of a publicity nightmare for the cabal of Wall Street Banks. Since last week, we’ve had to watch Bear Stearns (BSC) and its lenders try to “contain” collateral damage to its franchise. This morning, The New York Times ran a piece on the front page of its business section, “Funds’ Woes Didn’t Deter A Stock Offer.” Woe and behold, in early May, the benevolent folks over at Bear Stearns (BSC) had apparently devised a way for the “ma and pa” investor to own a chunk of some of the most toxic stuff inside their “High-Grade Structured Credit Enhanced Strategies” and “High-Grade Structured Credit Strategies Enhanced Leverage” Funds. They had founded a company literally overnight and called it Everquest Financial. Sounds prett good, huh? Bear Stearns subsequently funded it with $400-million and bought assets from the aforementioned hedge funds that it had been managing for some of its “accredited investors” (read: some of its wealthier clientele). As you might know, within six-weeks of it filing to go public with this faux-company, one of the funds from which it bought assets from was worth less-than-zero and the other may or may not have had a positive value. No one seems to know for sure. What sweet guys. Obviously, that filing has since been shelved. No harm, no foul, right? If its not obvious to most by now, be skeptical. Be very, very skeptical of anything that Wall Street says is good for you and especially me. Wall Street, for the most part, only knows how to help themselves…..It should also not be lost on folks, that Blackstone Group’s “common units,” just priced with great fanfare on Friday, went to a discount on just its third day of trading (an affront to speculative manias everywhere) and Fortress Investment (FIG) plumbed a fresh post-IPO low today to boot. Meanwhile, another bad report from a major homebuilder, Lennar (LEN) and weaker than expected existing and new home sales had the bubble-onians yelping for another bottom in housing—just as the leveraged private equity and hedge fund folks sit upon the cusp of rolling-out their own declarations of a bottom. Wow, we may be seeing two bubbles that are probably bigger than the tech and dot-com bubbles of the late 90s both searching for a bottom at the same time. Oh, and the government agency, the Securities and Exchange Commission, that is supposed to "protect investors, maintain fair, orderly, and efficient markets" has officially opened-up 12-probes in CDO matters. At least SEC Chairman, Christopher Cox, will be on record as getting ahead of this freight train long after it left the station.

The 'S' in NSM, stands for "Sell"?

In my June 9th post titled, "Semi-Charmed: NSM 'engineers' big gains," which had been posted just hours after National Semiconductor (NSM) announced a pretty robust package of financial engineering (does this industry give member-only seminars in how to do these things?), I had pondered, "Is it mere coincidence that the same industry and its executives that institutionalized the art of "backdating" option grants, have now patented the leverage buyback?" On the conference call that day, CEO, Brian Halla said, "We believe that the leveraged share repurchase program is an effective way to improve the company's capital structure, and it reflects management's confidence in National's robust business model and future growth prospects." Halla had sold a bit over $10-million worth of National Semi on March 28th; and five other insiders apparently felt that the 16-percent jump in NSM's shares following the announced financial engineering package kind of offset however "robust" its "business model" might actually be. From June 11th (2-days after the firm's conference call) thru June 15th, insiders liquidated just over 1-million shares worth just over $29-million. Presumably, some of this stock was likely sold right back to the company via its stock repurchase plan.

Blackstone announces reverse IPO, errr, LBO of self, or something like that (parody)

Bloomberg and CNN have confirmed that CEO, Stephen Schwarzman (pictured to the right) and his private equity firm, Blackstone Group (BX), have made an offer to buyout itself at $45 per share. Having just issued 133-million "common units" at $31 per share last Friday, word of Mr. Schwarzman's subsequent buyout just three days later, and at 14-dollars per share more than Friday's IPO price had traders and portfolio managers in London buzzing with excitement. Upon hearing of the somewhat quirky move by the LBO King, Ron Willlis, an equity trader with Barclay's Bank in London said, "This move by Schwarzman just proves that this globally-synchronized bull market in everything is pretty much unstoppable!! Its not even funny how great things are!!"

According to sources close to Schwarzman, who was in Managua, Nicaragua on Saturday negotiating a potential buyout of the Central American country, the LBO billionaire was very frustrated with the reception investors gave his company, The Blackstone Group, on its inaugural day of trading at the New York Stock Exchange on Friday. Upon returning to New York early Sunday morning, we gained access to Mr. Schwarzman at his Park Avenue offices where he indeed confirmed his intentions to "LBO" his own firm. When asked if the less-than-expected 4-dollar gain in shares of Blackstone on Friday had prompted his decision to go private, again, Schwarzman said curtly, "It was 4-dollars and six cents, and yes!!" A noticeably agitated Schwarzman said, "That 4-dollar-and-six-cent gain in our shares was an affront.... an insult to speculative manias everywhere!!" And, "This situation absolutely requires...a really futile and stupid gesture be done on some one's part...and I'm just the guy to do it."

Referring back to the meteoric rise of IPOs during the tech and Internet bubble in 1999 and 2000, Schwarzman said, "What, TheGlobe.com rose something like 90-points on its first day?" He said, "....and I don't even think they even had a product." Pointing over at a long table that ran the length of Blackstone's giant fourth floor "war room" occupied by no less than sixty to seventy accountants and lawyers, on a Sunday no less, trolling through old bond indentures and federal tax code manuals, Schwarzman said, "At least we have a product."

When pressed on the details and wisdom behind an LBO at a price that is 45-percent higher than its three-day-old IPO, Mr. Schwarzman replied in a very deliberate and mellow tone, "That's what makes America great. You can do some pretty crazy-ass stuff with your money and other people's money---that may not seem all that prudent or even logical at the time, but somehow it just seems to work out fine."

Perry Hudwinkle, a Vice-President of Mergers & Acquisitions at Morgan Stanley, said of Mr. Schwarzman, "This is what makes Stephen such an incredible asset to our planet, he is capable of quite literally splitting the financial atom. I no longer question his financial maneuvers because I believe he may actually be infallible. And I'm not just saying that because we co-managed his equity underwriting and will advise his company on their $5.98-billion junk bond offering to finance the LBO. I really mean it."

'stoned

For those that wanted to catch a glimpse of the beginning of the end for the private-equity rager and happened to tune into the obnoxious cheerleading taking place on CNBC reporting on the IPO-ing of the first major private-equity firm in history, Blackstone Group (BX)-- it was quite a spectacle. It was the brand of commentary and hyperbole that only accompanies a speculative mania. Private equity has had three runs over the past thirty years, the late 80s late 90s and today. Each previous time, you, as an investor did not want to be on the business end of their dealings. This time may be the mother of all private equity runs that may forever brand the corporate raiders for what they are--"robber barons." The company sold 133.3 million common units today, representing a 12.3% stake. It was one of the largest offerings in recent years. Closing at a price of $35.06, its market-cap is approximately $38-billion. Not ironically, it was the same Blackstone Group that Sam Zell sold his commercial real estate empire, Equity Office Properties, to in February of this year. Apparently unable to find another private equity firm willing to buyout his own company, and unable to LBO itself, Stpehen Schwarzman and The Blackstone Group turned to the public to liquidate a substantial portion of his business holdings. And as they always do towards the end of any mania, the public gladly obliged. Even the Chinese, gripped with their own brand of investor mania, grabbed a $3-billion chunk of the financial alchemist for their own. But back to Zell, who sold out his holdings to the same private-equity concern just 4-months previous. It was just 5-days, February 8th, before Blackstone had inked its deal with Zell and Equity Office Properties that the REIT sector, as gauged by the i-share Real Esate REIT Index (IYR), peaked before dropping nearly 20-percent over the subsequent 4-months. This event may not pin-point the exact point in time that private equity died, but a look back in history, when days, weeks and months bleed together--2007 will forever be remembered as the Private Equity Bubble and the beginning of its end.

Bear Stearns' Hedge: Bodies in the basement

So much of the glue that is holding this ponzi scheme together that we casually refer to as the "world's finance and banking system" is not even real. Some hedge fund portfolios are leveraged 10 to 1, or more, against assets that quite literally don't exist. That's the central issue with this Bear Stearns (BCS) fund called "Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund," that has been teetering on the brink of collapse this week. Anyone wonder why Wall Street cordoned-off this fund like it was the child of god? If markets were capable (or allowed) to act as a discount mechanism like in the good 'ole days, a lot of money would be running for the exits with hair ablaze. And where is Christopher Cox and the SEC anyway in this obvious exercise of market manipulation and obfuscation? But the Investment Banking Cartel knows that its game would come, literally, to a crashing end. And unfortunately, the sundry government agencies that are supposed to protect us from such schemes are also on the cartel's payroll. Can you imagine the penalty levied against a single individual for intervening in a single illiquid stock in the interest of giving his or her friends time to exit unharmed? Its the same thing only multiplied by a few billion. So they've all rushed to keep the dream (read: scheme) alive. Forestalling market corrections and/or outright financial dislocations as in what would and should have happened to the "Bear Fund" only emboldens further risk taking and adds to investor complacency. As a result, this further prolongs this era of malinvestment which will eventually assure us that when things do unravel, its going to be spectacularly, breathtakingly, catastrophic.

Dissing Discounting

What strikes me is that markets seem to be incapable of "discounting" anything that might harm it. Sure, the Dow Industrials gave back 146-points of the roughly 1700-points it has gained since mid-March, but it still rests less than 2-percent from its all-time high. Most intriguing is the backdrop in which stock indexes have decided to throw such a speculative party. In spite of the nearly daily pronouncements that the "bottom is in" for housing with each progressively depressing data-point, stocks power forward. In spite of Jordan's King Abdullah warning the world that the Middle East is on the verge of not one, but three civil wars, stocks power higher. In spite of gas prices exceeding its all-time inflation-adjusted highs, stocks spurt higher. In spite of nearly daily clues of weak and weakening consumer spending (read: Best Buy and Circuit City), stocks go higher. In spite of the 10-year Treasury rate backing-up to its highest level since 2002---in a highly leveraged world, stocks go higher. In other words, if all of this should be acting as discounting data, but is incapbale to do so because of incredible complacency and everyone's catch-all---liquidity, then we find ourselves sitting in a very awkward and precarious position this evening, June 20th, 2007.

Todd Harrison of Minyanville scribbled an enticingly spot-on narrative as it concerns the current state of markets in which he titled, "Running blindfolded with the bulls." I encourage readers to check out the full account. But one of the more entertaining and poignant observations was as follows: "To be sure, there are plenty of reasons to question this rally. Debt levels are at historic highs, the housing market has visible cracks, the U.S economy is finance-dependent and rates seem to be trending higher around the world. And yet, true to form for the last few years, reward chasers are once again making risk managers feel silly for exercising their prudence."

I recall another period when prudence was punished much like today. If my memory serves me correctly, that was sometime late in 1999 and early 2000.

Home Depot: "The do it yourself LBO"

General Electric (GE) announced a minor buyout of an energy concern for $603-million. No big shakes for a company with a market-cap over $400-billion. So that can't be the reason for the market awarding GE another $14-billion worth of market-cap with its $1.32/share gain today. More likely, it was Boeing's (BA) $8.8-billion worth of orders for its 787 Dreamliner, of which GE makes engines for. Yea, that must be it. Of that $8.8 billion, somehow nearly twice that amount will flow the GE's bottom line making today's $14-billion market-cap surge fully justifiable. Hmmmm, the math doesn't quite gibe. Maybe it was news of GE joining a bidding war against Rupert Murdoch's News Corp. (NWS) with Pearson PLC for control of Dow Jones & Co. (DJ)? Granted, Dow Jones' $4.9-billion market-cap is a spit in the ocean for a company the size of General Electric, but we know bidding wars for a cyclical print media company trading at its six-year high has to be good news for any one lucky enough to outbid someone as "driven" as Rupert Murdoch.

After the market close, we also learned that Home Depot (HD) is going to nearly LBO itself with a massive $22.5-billion stock buyback of its own shares. Fortunately, the company has $4.127-billion of cash and short-term securities on its balance sheet and it sold its supply business, HD Supply, to another private equity firm earlier in the day for $10-billion. Which means, of course, that the retail homebuilding supply company must only raise another $7.8-billion in debt to gidder done.

Crude, fortunately not part of "core"

Market action was about as hum-drum as a Monday could be. Once again, there were no blockbuster mergers or acquisitions even though speculators had piled-in last Friday in anticipation for as much. Crude prices broke above $69/barrel--the highest level since last September. A one-dollar spike in oil to a 9-month high, and three from the all-time high barely spooked the bulls. Even though a one-dollar per barrel drop in recent weeks and months would appear to be just another excuse to throw a serious party.

Below is an excellent account of the current bullish spin as it concerns the recent spike in Treasury interest rates. This is a snippet from Stephen Giauque's most recent insightful and entertaining e-mail that had been forwarded to me last Friday. I think he nails it:

"Larry Kudlow is "spinning" the rate spike as a "growth surprise" and thus the bond market is just pricing-in stronger economic growth. The logic these guys use is stunning. Bad news, is always, somehow, just more good news if only you look at it "correctly." The underlying logic of this is so flimsy one need only take a look at a chart of the 10 and 30—year Treasury rates from November 1994 thru March 2000. During that span, the yield on the 10-year Treasury rate dropped from a high of 7.88% to 4.69% in March 2000---that’s a 40% drop in the cost of money. Is it really a surprise that that environment of dropping interest rates was accompanied by one of the biggest and longest bull markets in history? Again, dropping rates encourages further leveraging and speculation. Granted, it ended in tears because Alan Greenspan wanted to be loved and didn’t want to be blamed for ending that party even though it was quite obvious by 1998 that things were getting out of control—kind of like today’s private equity activity. But for much of that span, economic growth was more "real" than it is now--and again. rates were dropping. But one variable that appears to be correlated with that period and the current period was the direction of the dollar. The dollar had enjoyed a serious bull market of its own during that '94 to 2000 period. Now, the dollar is in a bear market and rates are beginning to rise. There is far more evidence that this spike in rates is a dollar issue, and not a "growth" issue. But it’s amazing how easily this logic is allowed to be twisted and then you hear it regurgitated throughout the press over and over again. Sometimes it almost feels like "talking points" being controlled by a political campaign."

Fake report on inflation ignites authentic speculation

With all the hand wringing over rising rates, stocks wanted nothing more than to be told not to fret over inflation. And stocks got what they wanted. The latest yarn spun by the folks at the Labor Department reported that "headline" inflation rose a bit more than expected, 0.9%. But more importantly, the "core" rate, for those in our society that don't eat or use petroleum products, rose a meager 0.2%. Wheeewww. Par-teeeeeeee!! Better yet, wholesale food products actually subsided by o.2% last month. Speculators used the latest fake report on "real" inflation to gorge themselves on "paper products," which as we can see is suffering a bout of inflationary pressures of its own.

A precious quote

"Meanwhile, the government reported its version of retail sales, and they were up 1.3%, versus expectations of up 0.7% (that being the strongest gain in about 16 months). Obviously, the government's data doesn't jibe with what the retailers themselves told us in May--just another example of government data being essentially worthless."

--Bill Fleckenstein, 6/13/07

Omnipotent Fed Govs trump everything else

Stocks surged today. It was the biggest one-day point gain for the Dow Industrials since last July. And what got the party started? As expressed in the recently released Beige Book, the cabal of current Fed Governors can't see anything big and/or bad that could possibly derail the sprite "0-point-6-percent" growth of the U.S. economy. Not inflation, not a housing crash, nor private-equity and hedge funds spewing-out debt like drunk frat-boys spew chunks of half-digested pizza and beer. No nothing seems capable of halting this vibrant economic Adonis; so say the omnipotent Fed Governors. Even tech and semiconductor stocks enjoyed a huge bounce. Forget the fact that the Semiconductor Industry Association (SIA) lowered its forecast for 2007 global microchip sales growth from 10 percent to 1.8 percent today. No, its all good. In fact, Larry Kudlow has even gone so far as to proclaim the nearly 20-percent increase in the cost of borrowing 10-year paper (from 4.5% to 5.25%) is just a "symptom" of "vibrant worldwide growth" (read: growth trumps higher rates). But what if the spike in yields has nothing to do with "vibrant growth" and instead is a symptom of Asian reserves shopping for places to park their cash that where it won't get ravaged by inflation? After all, this back-up in rates for whatever reason seems to have coincided within weeks of a number of countries making their intentions known that they'd like to distance themselves from the U.S. dollari (read: Argentina, Brazil, Kuwait, United Arab Emirates and Syria). That's a trend that might not be so good, Larry. Especially in a world where the U.S. depends so heavily on the kindness of strangers and artificially low yields; not to mention the obvious--that there is more leverage embedded within the world's financial system like never before. And by the way, Larry, didn't the 10-year rate drop considerably from 1994 thru March 2000--the last time real U.S. GDP averaged above 4-percent per year for an extended period of time? Using your logic, rates should have been rising. And couldn't this spike in rates, just maybe, inflict some pain in a world where speculators have laid a few trillions of dollars worth of plans designed for a world awash in plentiful and cheap credit as far as the eye can see? I don't know, maybe, but maybe not.

KKR: Now hiring money

Again, I'll make tonight's "un-winding" story brief. As reported by the Wall Street Journal, the same folks at Kohlberg Kravis Roberts & Co. (KKR) that rang the bell at the top of the late 80's LBO frenzy with its abominable buyout of RJR Nabisco, is trying mightily hard to do the same this go-round. Apparently, they've burned through their war chest of cheap money and has made it known that it is "inviting" guests to partake in its $26-billion "roll of the dice" LBO of First Data Corp. (FDC). News of Blackstone's eventual IPO got us close to midnight on this latest orgy of speculation, and I believe word of KKR's "all points notice" gets us a few minutes closer. I won't even mention the climbing 10-year rate. If a fork in the housing bubble isn't bad enough.

Stocks: "X" that thought

Today's market action was pretty nondescript. But I thought the most intriguing (or entertaining) part of today's moving pieces was that stocks hardly considered returning last Friday's 150 Dow points to their rightful owner even though the supposed catalyst for that move, a rumored buyout of U.S. Steel (X) by German-based ThyssenKrupp, failed to materialize and was all but quashed by ThyssenKrupp itself: “This report is incorrect and totally inaccurate. ThyssenKrupp is not conducting talks with Severstal or U.S. Steel about cooperation or a merger.” In ironic fashion, markets were essentially capable of "X-ing" last Friday's reason for stock's levitation from its memory. Not only did that mega-merger fail to materialize, no mega-merger materialized at all on "Mega-Merger Monday." The underlying and evolving story is, as rates all over the world have backed-up, to what degree is the private-equity "put" fermenting?

Semi-Charmed: NSM "engineers" big gains

Stock indexes essentially grabbed back what was lost yesterday....It marked the 12th straight positive Friday finish for the Dow Industrials. Probably a record. Since historically, the Dow has finished in positive territory on a daily basis a bit less than 55-percent of the time, the probability of twelve straight positive Friday finishes works out to be about 1.5 events per 1000. Not insurmountable, but an event likely to occur once, maybe twice in one's career on Wall Street. And why might Friday's be somewhat more frothy than say a Wednesday? I believe we can chalk it up as yet another among many mutating outgrowths from the M&A and private-equity orgies as folks try to align themselves ahead of the "sure to be" announced mega-LBO announcement on Monday. We're witnessing layers upon layers of speculation on a daily basis (circa June 2007).....National Semiconductor (NSM) announced an accelerated $2-billion share buyback to be financed with a bond issuance (read: leverage). FYI, the company has about $800-million cash on its balance sheet. Earnings and revenues were a bit better than expected, but the latest semiconductor to announce a robust package of financial engineering really goosed the stock, finishing up nearly 4-points, or 16% and was deemed to be good for every other semiconductor stock on the planet. The SMH (semiconductor HOLDR) was up 3%--nearly matching the returns for the semiconductor group's first 156-days of 2007. Is it mere coincidence that the same industry and its executives that institutionalized the art of "backdating" option grants, have now patented the "leverage buyback?"

On the brink: "The big un-wind?"

Perhaps today's market action is the beginning of another head fake for "the big unwind," but there will be a time when buying the dips fails to work.....The Dow Industrial were hit rather hard, 198-points....Treasury Bonds were walloped!!! Volume in the Treasury market was enormous once the 10-year broke above a 5-handle....This global backing-up in rates is putting every pending and recently finalized LBO deal at risk. When the liquidity (read: debt) spawned by private equity dries-up, we may final begin "the big unwind." It will be one for the ages......Jim Cramer, I'm told, has officially labeled Google (GOOG), $525, Apple (AAPL), $127, Research In Motion (RIMM), $167, and Amazon (AMZN), $74, as the new four horsemen. As this posting will be archived, check these prices within the next 12-24 months of this date (6/7/07). Most or all of these "four horsemen" will be more than cut in half. In fact, I'm quite confident that the old four horsemen, Microsoft (MSFT), Dell (DELL), Cisco (CSCO) and Intel (INTC) will easlily outperform the current group by a pretty wide margin, even if its just the case of not losing as much. Jim Cramer is a walking, breathing contrarian indicator...Lastly, I believe the pounding of both bonds and stocks is occurring as a result of the current air of vulnerability in the mighty U.S. Dollar (read: confetti). In recent weeks, Kuwait has decided to de-link its currency from the dollar. Brazil and Argentina has ended their bi-lateral dollar-based trade agreement (read: no more settlements in U.S. dollars). The United Arab Emirates has hinted at de-linking. JGBs (Japanese bonds) have put in a impressive looking topping-pattern and will be a tremendous short trade. The German Bund, I beleive is breaking down. Australia raised it benchmark lending rate and New Zealand surprised markets with its own hike. The Ausie and NZ dollars established fresh new generational highs against the US dollar. Meanwhile, the Dollar Index broke down below its 200-day moving average for the first time since the early 70s last week. Yet, complacency reigns. The U.S. dollar has been a nagging issue for some five years now, and nothing real bad has happened, except that the U.S. Government has to lie about their official inflation rate. But the soldiers appear to be lining-up along all borders for a dollar rout. Maybe, like I said, this is another storm that will fade into the night, but sooner or later, the storm will be a "Cat-5." We'll see how this one plays out, but I urge readers---don't try to be heros. The money shot will be when the dollar gets abandoned and foreigners unload their dollar-assets. That's the terminal bet. Non-dollar currencies will come in handy, as will real money, gold and silver. Playing the zigs and zags of the "leveraged bets" will be futile if you find yourself "all in" on the day the dam is breached.

Welcome to Fiat & Bubbles

I might as well say, "welcome to the state of the world's financial system." My name is Randolph "Randy" Burke. As an heir to a small family fortune and responsible for the financial well-being of two brothers and a sister, and their families, I've spent the greater part of my professional life managing the bulk of my family's small fortune. And I've had a wonderful fulfilling life traveling and spending many precious moments with both family and friends all over the world. I'm extremely grateful for the opportunities and gifts that being borne into privilege has bestowed upon me. And I'm humbled by the lack of wealth and the dearth opportunity that I occasionally find in my travels--- it truly breaks my heart to see mothers, fathers and their children struggle so. But the weight of my responsibilities and duties to my family, in a world of fiat money and asset bubbles so numerous that I can't even begin to count them all, has me deeply troubled by what lays ahead for the rich, for poor for privileged and for the desperate. Don't get me wrong. Things are great from my current vantage point as I write this. But things often look great from a cozy and lofty perch. And I fear that we are fast approaching the limits of what can be accomplished with fiat money, leverage and excess unproductive credit spawned by mutually complicit, irresponsible central bank monetary policy all over the globe. And from such lofty heights, the swan dive will be both tragic and spectacular for many of the "nouveau riche." I pray that I've taken the necessary steps and that I will not be one of them. And for the not so privileged, it will only get even more dire and more desperate. It keeps me up at night. The unwinding of the global asset (or credit) bubble has the potential to destabilize entire regions of the world. Poverty will spread across borders. Governments will fail and anarchy will become the norm for very wide swaths of the planet. Its a grim view; hardly a spec in the viewfinder from our current perch atop bulking mutated asset values. But its out there and it approaches. In the following months and years, I will be sharing with you some personal commentary on this evolving story that is almost sure to unravel in spectacular fashion. I will pass along ideas and observations from friends and confidants as well as other market professionals that I've grown to admire and respect for their bold and un-conflicted pursuits; including folks like Jeremy Grantham, George Soros, Marc Faber, Jim Rogers, Sir John Templeton and Warren Buffett. I hope you enjoy my posts. And most of all, I hope some of this motivates visitors to take precautions as we enter a potentially very troubling period in history. I welcome hearing from fans and dissenters alike.