Mish's Global Economic Trend Analysis

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• French Telecom Company Does Biggest Junk Bond Sale Ever; Bidding Wars for Junk; AOL Flashback
• New Home Sales Plunge 14.5%; It's Not the Weather; Steen Jakobsen on Consensus vs. Reality
• Einhorn Shorts "Cool Kid" Bubble Tech Stocks

French Telecom Company Does Biggest Junk Bond Sale Ever; Bidding Wars for Junk; AOL Flashback Posted: 23 Apr 2014 05:15 PM PDT With central bankers globally suppressing interest rates, the search for yield elsewhere is on. One of the places investors have turned is speculative junk bond offerings. Please consider French Company Does Biggest Junk Bond Sale Ever. Numericable (NUM), which provides cable and internet service in France and other European markets, sold a record amount of high-yield bonds Wednesday with some priced in dollars and others in euros. It's sold $7.78 billion and €2.25 billion in notes that yield 5% or more, according to a statement from Altice, the multinational telecom group that owns Numericable. Altice issued $2.9 billion and €2.1 billion in bonds that yield more than 7%. Numericable will use the proceeds to finance its acquisition of rival cable company SFR. Overall, the deal represents the largest sale of high-yield debt on record, according to Dealogic. It surpassed Sprint's $6.5 billion debt sale in September. Dollar Equivalent Junk All told Altice issued 10.68  billion in dollar denominated bonds and 4.35 billion in euro denominated bonds. The grand total in dollar equivalent junk is an amazing $16.69 billion. Bidding Wars for Junk $10.89 billion of that went to buy out a rival company at an undoubtedly absurd price due to bidding wars. The New York Times has some bidding war info in Numericable Raises $10.9 Billion in Junk Bond Offering. The battle for SFR pitted two French billionaires against each other: Martin Bouygues, who runs the diversified industrial group that bears his name, and the French entrepreneur Patrick Drahi, who since 2002 has built Altice into a global operation with cable and cellphone assets in Europe and the Caribbean. Bruno Lasserre, the president of the Autorité de la Concurrence, has said that the French competition watchdog would conduct a "thorough review" of the Numericable-SFR combination, but that review is not expected to preclude the deal. Altice also raised an additional €4.15 billion in junk bonds to help finance its purchase of a larger stake in Numericable ahead of the SFR merger. Altice is buying an additional 34.6 percent stake in Numericable, giving it a 74.6 percent stake in the unit. Reflections on AOL These are the kinds of deals that mark the top of markets. Recall the merger of AOL and Time Warner in 2000. Check out this New York Times report from January 11, 2000: MEDIA MEGADEAL: THE OVERVIEW; AMERICA ONLINE AGREES TO BUY TIME WARNER FOR $165 BILLION; MEDIA DEAL IS RICHEST MERGER. America Online, the company that brought the Internet to the masses, said yesterday that it had agreed to buy the largest traditional media company, Time Warner, for $165 billion in what would be the biggest merger in history and the best evidence yet that old and new media are converging. By agreeing to give up its independence in return for an ample premium on its stock price, Time Warner is acknowledging that the Internet is central to its music, publishing and TV businesses and that its own efforts to create online operations have been lackluster. The deal, which was negotiated with such secrecy that it took the industry by surprise, also brought a new realization about the extraordinary stock-market values that America Online and other Internet companies have reached the last 18 months. Although analysts have long predicted that the stars among the Internet upstarts would wind up part of larger media empires, the deal indicates that it could be the Internet companies that do the buying and the old media that sell out. "The dot-com guys have sort of won," said David B. Readerman, an analyst with Thomas Weisel Partners, a San Francisco brokerage firm. "AOL was able to serve up its stock and buy Time Warner, walking away with incredible media assets." With a market value of $342 billion, based on yesterday's closing stock prices, the combined corporation would be the fourth-most-valuable company in the country, after Microsoft, General Electric and Cisco Systems. And its stock market value would roughly be equal to the gross domestic product of Mexico. Broken Marriage Flash Forward January 10, 2012: The New York Times had a Revised Take on the AOL Time Warner Merger. On Jan. 10, 2000, the Internet service company AOL and the media giant Time Warner announced that AOL would buy Time Warner for more than $160 billion in the largest merger in corporate history. However, the new company, AOL Time Warner, did not live up to its potential. The merger occurred at the height of the "dot-com bubble," a time when AOL's value was grossly inflated. Its stock price plummeted within a few years of the merger, causing huge losses for AOL Time Warner. Furthermore, the AOL and Time Warner divisions remained at odds with each other and did a poor job integrating their products. In 2009, Time Warner decided to spin off AOL as its own company again, ending their ill-fated relationship. But, as The Times noted, "the merger between AOL and Time Warner will likely remain a prominent part of both companies' legacies, rather than becoming a historical footnote. After all, more than $100 billion in shareholder value was wiped out." In 2011, AOL bought The Huffington Post, the news, aggregation and commentary Web site, for $315 million. "To call the transaction the worst in history, as it is now taught in business schools, does not begin to tell the story of how some of the brightest minds in technology and media collaborated to produce a deal now regarded by many as a colossal mistake," Tim Arango wrote in a New York Times article on the 10th anniversary of the merger. The merger between Time Warner and AOL was among several examples of increased concentration of media ownership in the first decade of the 21st century — a topic that aroused debate about media deregulation and the impact of conglomerated media on information and entertainment. The ludicrous bidding war for SFR in which Numericable lost (by winning) will not go down as the worst deal ever, but it may go down as the worst junk bond deal ever. The bidding war for SFR is exactly the kind of nonsense the easy money policies of the Fed and central banks in general have fostered. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

New Home Sales Plunge 14.5%; It's Not the Weather; Steen Jakobsen on Consensus vs. Reality Posted: 23 Apr 2014 10:59 AM PDT The Census Bureau report New Residential Sales Report shows sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000. Sales are 14.5 percent below the revised February rate of 449,000 Sales are 13.3 percent below the March 2013 estimate of 443,000 Median sales price was $290,000 vs. $260,900 in February, $257,500 in March of 2013 Average sales price was $334,200 vs. $318,900 in February, $300,200 in March of 2013 Median sales price was up 11.5% from last month, 12.6% from year ago Average sales price was up 4.8% from last month, 11.3% from year ago New houses for sale was 193,000 Supply is 6.0 months at the current sales rate Sales by Region (Month-Over-Month, Year-Over-Year) Northeast +12.5% MOM, -22.9% YOY Midwest    -21.5% MOM, -17.7% YOY South        -14.4% MOM, -03.8% YOY West         -17.7% MOM, -27.9% YOY Total         -14.5% MOM, -13.3% YOY It's Not the Weather USA Today noted "Harsh winter weather helped hold down sales in February and may have in March as well." Also note: "Economists had predicted an annual rate of 450,000 for March, according to the median forecast in Action Economics survey." My question: If sales decline was weather related, then why were sales up in the Northeast? I suggest the Fed managed to blow another housing bubble, especially in California and the West where sales are down the most. With rising rates, people are priced out of the market. Steen Jakobsen on Consensus vs. Reality Steen Jakobsen, chief economist at Saxo Bank tweeted "Housing tanks again - according to consensus housing should add 0.5%-0.8% to GDP in the US in 2014" Steen: "Consensus is looking for 0.5% to 0.8% positive GDP from housing. Pity the opposite is happening ... and that on a day when 100% of economists in recent survey by Jim Bianco see US rates higher in six months! Yes, 100%." Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Einhorn Shorts "Cool Kid" Bubble Tech Stocks Posted: 23 Apr 2014 08:20 AM PDT Greenlight Capital hedge fund manager Einhorn Shorting Tech as 'Cool Kid' Stocks Show Bubble. Greenlight Capital Inc., the $10.3 billion hedge-fund firm run by David Einhorn, said it was betting against a group of technology stocks as evidence grows of a bubble. "There is a clear consensus that we are witnessing our second tech bubble in 15 years," the New York-based firm said in a quarterly letter to clients today. Greenlight said that companies it's betting against may fall by at least 90 percent "if and when the market reapplies traditional valuations," according to the letter, a copy of which was obtained by Bloomberg News. Greenlight cited initial public offerings of technology firms that have "done little more than use the right buzzwords and attract the right venture capital" as evidence of how far along the current bubble is. Greenlight, best known for wagering on a decline in Lehman Brothers Holdings Inc. before the bank collapsed in 2008, said it was betting against a group of stocks because it reduces the potential of a single investment becoming too costly. The firm didn't identify the individual companies. Greenlight questioned whether technology companies would be able to keep their highly skilled employees if they stopped giving them large amounts of equity. The firm said it was hard to ignore the future dilution of shares that result from paying employees in stock. "Once again, certain 'cool kid' companies and the cheerleading analysts are pretending that compensation paid in equity isn't an expense because it is 'non-cash'," Greenlight wrote. Valuations are without a doubt back in bubble land. The only open question is whether the time is finally ripe for shorting. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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