“…..Einhorn says Apple could create hundreds of billions worth of value:

For example, Apple could initially distribute to existing shareholders $50 billion of perpetual preferred stock, with a 4% annual cash dividend paid quarterly at preferential tax rates. Once a trading market is established and the market recognizes the attractiveness of a highly liquid, steady yielding instrument from an issuer backed by Apple’s unmatched balance sheet and valuable franchise, the Board could evaluate unlocking additional value by distributing additional perpetual preferred stock to existing shareholders.  With this conservative action, Greenlight believes the Board could unlock hundreds of billions of dollars of latent shareholder value.

Assuming Apple retains its price to earnings multiple of 10x and the preferred stock yields 4%, our calculations show that every $50 billion of perpetual preferred stock that Apple distributes would unlock about $30 billion, or $32 per share in value.  Greenlight believes that Apple has the capacity to ultimately distribute several hundred billion dollars of preferred, which would unlock hundreds of dollars of value per share.  Further, Greenlight believes additional value may be realized when Apple’s price to earnings multiple expands, as the market appreciates a more shareholder friendly capital allocation policy….”

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“…..Kass was just on CNBC, and he made some rather dramatic comments.

“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”

For those who don’t remember the summer of 1987, here is what it looked like:

…”

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“Bill Gross and his colleagues at fund giant Pimco are mildly bullish on stocks.

“We aren’t a two-eared, one-tailed bull like in Spain, but perhaps one ear,” Gross, co-CIO of Pimco, tells CNBC. “We think the market can go up 5 to 6 percent. It’s done that already in January. That’s a decent return and a bullish statement going forward.”

The Standard & Poor’s 500 Index soared 5 percent last month.

The money going into stocks hasn’t come out of bonds, Gross says. Pimco itself saw a $20 billion inflow to bonds during January.

“We think it’s coming from money market funds, capital gains and accelerated dividend payments from last year.”

Gross famously said last summer that “the cult of equity is dying,” and he doesn’t back off that statement, though his logic sounds a bit tortured.

First, he says January is a “one-month type of thing” for stocks. Then he says, “The cult of equity isn’t a downer in terms of returns but a downer in terms of the willingness and ability of demographic influences to present a change to stocks.”

Gross goes on to say that aging baby boomers will be more attracted to bonds than stocks. It seems a bit odd that the dying cult shouldn’t be expected to push returns down.

In any case, Gross says investors will hesitate to buy stocks after being burned by several market plunges over the last 13 years.

As for bonds, Gross says stay away from the long end of the market. “Going back to last July, we saw the beginning of the bear market and long bonds.” The 30-year Treasury has dropped about 15 percent since then….”

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Urgent: Should Obamacare Be Repealed? Vote Here Now!a

“Overall, Gasoline Exports net loss for economic productivity 

The gasoline market is well supplied, but if it weren`t for gasoline exports, the united states would have much cheaper gasoline, and the economy would reap the benefits of cheaper inputs which would fuel greater growth in the US. For example, I imagine college students, truck drivers and small business owners would be much more profitable paying a dollar less per gallon for gas over a year`s time.

Gulf Coast Refiners

The refiners along the gulf coast have a strategic advantage in using the WTI oil input price, making refined products, and then selling them based upon globally benchmarked Brent Oil inputs. So quite the incentive to export as much refined products as possible with these attractive margins.

Econmatters

Consumers vs. Corporations

As with most transactions there are winners and losers, and US consumers are the big loser while refiners and the corporations that own them are the big winners. In short, the US consumer is subsidizing the refiners’ profit margins.

LNG Export Debate  …”

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Link for iPhone users: http://www.youtube.com/watch?v=M1C87CZwgAE

I posted another article about this last night from Z.H. and it is a good way to determine the froth of a new bubble….

“In 2005 and 2006, CDO’s were being pushed like crack.  I remember asking many of the pushers why I would leverage into credit at historically tight spread levels.  Their stock answer: “Because you can get a AAA rating at a much higher yield!  This thing will never break because it has so much subordination!”  My follow up question: “how do you know the correlations that you are using are right?”

Now I definitely did not know how bad it could get, but I was smart enough to know that you cannot make a (good) apple pie with a bunch of rotten apples.

Fast forward to today: searching for investment income (yield) and capital relief (lower capital requirements/higher asset ratings).

Jump into the news from WSJ:

The consumer-lending joint venture of private-equity firm Fortress Investment Group  and insurer American International Group is planning a rare securitization of subprime personal loans as early as this week, in the latest test of risk appetite for asset-backed bonds, where soaring demand has pushed yields to record lows.

The $604 million issue from consumer lender Springleaf Financial, the former American General Finance,will bundle together about $662 million of loans secured by assets such as cars, boats, furniture and jewelry into ABS, according to a term sheet.

Are you kidding me?  Furniture?  …”

Full article

“Demand for gold and silver coins is raging, and given the weak outlook for paper currencies, investors should hold on to these coins, says star investor Jim Rogers, chairman of Rogers Holdings.

Gold coin sales hit a 19-month high last month, while silver eagle sales climbed to a record peak.

“You can’t get [silver coins]. They sell out,” Rogers tells Yahoo. “Several mints have run out of coins, … because everybody’s worried about the future of the world.”

Spot gold stood at $1,671.80 late Tuesday, down 13 percent from the record high of $1,921.15, set in September 2011.

Rogers says he “wouldn’t rush in right now” to buy more coins, but would consider purchasing gold if prices fall further.

A correction is likely, he maintains. “Gold has been up 12 years in a row, which is extremely unusual for anything,” Rogers points out.

The long term looks bright for precious metals, he says. “There is no paper money in 2014 or 2015 that will be worth much of anything.”  …”

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“U.S. stocks will extend gains from a five-year high as corporate earnings increase and central banks maintain policies to stimulate economic growth, said Robert Doll, Nuveen Asset Management LLC’s chief equity strategist.

Interest rates near zero will lead investors to keep adding to equity funds, said Doll, who works at the Chicago-based firm that oversees $117 billion. He said he’s bullish on shares from the U.S. and emerging markets and concerned about European and Japanese equities.

“The fundamentals, meaning corporate earnings, macroeconomics, delay of problems in Washington, zero-percent return on cash, and monetary accommodation virtually everywhere in the world,” Doll said in a television interview on “Bloomberg Surveillance” with Tom Keene. “They’re the ingredients to me for stocks to go higher.”

The Standard & Poor’s Index has rallied 6.2 percent in 2013 after U.S. lawmakers reached a compromise on more than $600 billion in spending cuts and tax increases and corporate profits reached a record. The U.S. equity benchmark is less than 4 percent away from an all-time high reached in October 2007.

The Federal Reserve’s efforts to spur growth have included purchases of over $2 trillion in securities from December 2008 through several rounds of quantitative easing. The European Central Bank flooded its banking system with over 1 trillion euros ($1.37 trillion) in short-term cash beginning over a year ago, while the Bank of England and Bank of Japan have each undertaken their own stimulus programs.

Asset Allocation…”

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“Stocks have been rallying relentlessly to post-crisis highs.

Meanwhile, the volatility index (aka the VIX, aka the “fear index”) is near historic lows.

But according to UBS’s Art Cashin, some options trader has made an enormous $11.25 million bet that the VIX will explode higher very soon.

And a rally in the VIX is usually accompanied by a drop in the stock markets.

From this morning’s Cashin’s Comments (emphasis ours):

A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade.  Here’s what he wrote in last night’s edition of his valuable newsletter:

In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event….”

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“February 6, 2013—Timothy F. Geithner, the 75th Secretary of the U.S. Department of the Treasury, will join the Council on Foreign Relations (CFR) later this month as a distinguished fellow. Geithner, who was previously a senior fellow at CFR in 2001, will be based at the organization’s headquarters in New York.

“We are thrilled to welcome Tim back to the Council on Foreign Relations,” said CFR President Richard N. Haass. “Both at Treasury and at the New York Federal Reserve, Tim was a tireless, creative, and responsible custodian of the public trust. His coming to CFR only strengthens our capacity to produce thoughtful analysis of issues at the intersection of economic, political, and strategic developments.”  …”

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“European leaders lulled into complacency by Mario Draghi’s pledge to buy their bonds may be stumbling toward the next euro-region emergency.

Policy makers are squandering the decline in borrowing costs triggered by the European Central Bank president’s commitment to defend the single currency, leaving the 17-nation bloc’s economy and financial systems vulnerable, according to economists Charles Wyplosz and Paul De Grauwe.

“I don’t see how we avoid having another acute crisis now that governments are so pleased with themselves,” Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a telephone interview. “The wave of optimism we had was unjustified. Key elements of the crisis aren’t being dealt with.”

Concern that political turbulence would deepen backsliding has rattled markets. Ten-year bond yields in Spain and Italy rose this week to their highest of 2013 as Spanish Premier Mariano Rajoy faced opposition calls to resign amid contested reports of corruption in his party and Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections in three weeks.

Italian government bonds slid today with the yield on 10- year notes rising 1 basis point to 4.47 percent at 12:56 p.m. in Rome. Spain’s benchmark stock index fell 0.3 percent while the country’s 10-year bonds rose.

“The crisis has never been over,” said de Grauwe, a professor at the London School of Economics and a two-time candidate for a seat on the ECB’s Executive Board. “If this reversal goes on we’ll get a new stage and the ECB will have to act or it will lose credibility.” …”

Draghi’s Pledge…”

Full article

“Authored by Jamil Baz (CIO, GLG), Originally posted at The FT,

Brace For A Stock Market Accident

Profits and leverage are locked in a deadly embrace

There is a time-honoured tradition in statistics: whipping the data until they confess. Bullish and bearish equity analysts are equally guilty of this practice.

It would seem that statistical conclusions are merely an ex-post justification of a long-held prior belief about equity markets being cheap or overpriced. Clearly, consensus, notably among sellside analysts, is bullish. I present the bullish view before discussing a bearish counterpoint.

The difference between equity and bond yields – also known as the equity risk premium – is therefore close to 10 per cent. This is way above the 4-5 per cent premium required by investors to own equity, and therefore indicative of an ultra-cheap equity market.Who can blame the equity bullish consensus? Earnings yields – a proxy for real equity yields – stand at comfortably high levels. For example, the forward earnings yield on the S&P 500 is 8.3 per cent.

Contrast real equity yields with real bond yields: with the US Consumer Price Index at 1.7 per cent and the nominal Federal Reserve funds rate at 15 basis points, real bond yields are at -1.55 per cent.

There are two reasons why this consensus is misguided. First, because it uses dubious metrics. It is wiser to use a long-dated real bond yield because equity is a long-dated asset.

And forward earnings yields are misleading for well-documented reasons: analysts’ earnings consensus forecasts are known to be wildly optimistic; in a bid for juicier equity and call option compensations, managers encourage their accountants to inflate earnings numbers; and earnings are partially squandered by managements as they seek to prioritise growth over profitability.

So it is probably a good idea to use dividend-based – as opposed to earnings-based – equity valuation models. Unlike earnings, dividends do not lie.

Second, because consensus disregards leverage. Profits and leverage are linked (in a deadly embrace, it turns out). If deleveraging is yet to happen, then earnings growth can only be headed south.

So what if you trust dividends more than forward earnings? In a simple dividend discount model, the real equity yield is the sum of dividend yield and real dividend growth. The S&P dividend yield is 2.15 per cent. The real dividend growth has been historically 1.25 per cent.

The real 30-year yield is 0.4 per cent. Using these numbers, the equity risk premium is now 3 per cent, less than the premium level deemed acceptable. But we are not done yet, as we have not factored leverage into our equation.

Enter Michal Kalecki, a neo-Marxist economist who specialised in the study of business cycles and effective demand. Mr Kalecki showed that profits were the sum of investments and the change in leverage.

In the current environment, the implications of this equation are clear: in G7 economies, total debt is at a record 410 per cent of GDP. And this is excluding the net present value of social entitlements and healthcare expenditures, which is larger than the total debt….”

Full article

“The big rally in European risk assets like stocks took a breather late last week.

Citi strategist Robert Crossley is watching flows in sovereign bond markets, and he warns that problems are surfacing in Europe.

In a note to clients titled “Cracks starting to appear in Europe,” Crossley looks at demand for European sovereign debt – which just turned negative for the first time in three months.

Although the drop in demand has been led by a retreat from safe-haven investments in “core” sovereign debt – like that of Germany – the issue is where the money has been going.

Certain sovereign debt markets in the euro periphery – Spain, for one – have been the big winners. Demand for the periphery remains positive, notes Crossley, but that could change pretty quickly:

Although demand for peripherals has fallen, like the core, it remains positive. It is this cumulative yield-seeking positioning that concerns us in the current environment where the risk-on mood is turning and investors are reassessing the risk-reward of risk positions with the wash-out of carry trades in short-dated EUR swap forwards, a strengthening FX rate, and risks surrounding comments coming from the forthcoming ECB meeting.

Sure enough, there is one market in particular that has Citi particularly wary: Spanish sovereign debt.

As the chart below shows…”

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Link for iPhone users: http://www.youtube.com/watch?v=zFJfSIpIbDg

Source 

“FORTUNE — “The big question we get from investors is whether the greatest turnaround and growth story of the past decade is over?”

So begins a note to clients issued Tuesday morning by Sterne Agee’s Shaw Wu. His short answer is “no.”  His slightly longer answer is that Apple (AAPL) needs to think different to regain its “mojo.”

How exactly does it do that? Wu offers a four-step program:

1. Make a bigger iPhone. “In many markets, the 4.8- inch (Samsung Galaxy S III) to 5.55-inch (Galaxy Note II) form factors are the new high-end of the market where the iPhone 5 is viewed as mid-range but with a high-end price.”
2. Reclaim the high end. “We believe AAPL is leaving money on the table by not participating in larger touchscreen form factors. But more importantly, we believe AAPL needs to reclaim high-end leadership as that is what its brand is about.”
3. Address the mid-range better. “The iPhone 4 and 4S are highly desired by many but not as widely available as they could be… We believe this isn’t because of components but because iPhone 4 and 4S manufacturing capacity had been scaled back in favor of iPhone 5.”
4. Let the margins fall. “Investors have shown a willingness to accept lower margins for sustainable top-line growth. We have seen this with Amazon (AMZN) and Google (GOOG).”

Wu rates Apple as a “buy” with a $715 price target. Apple closed Monday at $442.32, down $11.30 (2.49%) for the day. The stock could use some mojo.”

“The Federal Reserve’s massive easing program is going to end in financial disaster, says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.

The Fed has become “an enabler of presidential and congressional inaction [on entitlements, etc.] by keeping interest rates artificially low for five years and now by printing money to buy U.S. bonds and mortgage backed securities at a $1 trillion annual pace,” he writes on his blog.

“Record low interest rates are propping up weak consumer demand but sowing the seeds of another financial crisis.”

Urban real estate is rising to unsustainable levels, as are junk bonds, Morici says. The Fed’s low interest rates have helped push student debt over $1 trillion, with one in six loans in default. The easing also has allowed many states to avoid pension reform, he adds.

“Inevitably, all that money will push up inflation, and then the Fed will be compelled to stop buying bonds and let interest rates rise to levels the federal and state governments can’t bear easily,” Morici writes.

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“Technorati has released a new Digital Influence Report, and the big theme (probably not surprising coming from a blog and social media ad network) is that most online marketing dollars aren’t being directed to the “blogs and influencers” where they could have the greatest effect. At the same, social ad spending is expected to increase significantly this year.

The company previously released annual State of the Blogosphere reports, but starting this year it’s expanding the report’s scope to include social media — hence the change in name. The company says that it surveyed 1,200 consumers, 150 brand marketers, and 6,000 influencers. (I sent Technorati CEO Shani Higgins an email asking how those influencers were identified, and she said that surveys were sent out to the company’s index of 2.5 million influencers, Technorati waited for 6,000 completed responses, and then it checked them to “make sure we get top influencers participating and a wide sample set.”)

Among the marketers, Technorati says 60 percent predicted that social ad spending will increase this year, and that the average predicted increase was 40 percent. However, the vast majority of their online spending still goes to display, search, and video advertising, with social only accounting for 10 percent of the total. And within social itself, most of the spending goes (in descending order) to Facebook, YouTube, and Twitter, with only 11 percent going to the “blogs and influencers” category that Technorati focuses on.

The report argues that this isn’t the best way for brands to spend their money….”

Full article

Janjuah said in November the S&P would spike above 1500 briefly with an eventual retreat over the next few years to the 800s. Let’s hope he stays half right!

Full article