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Recent Posts Thursday, November 27, 2008 About Mike Shed

• Chesapeake Mike Shedlo
Energy, Largest a registered i
US Natural Gas Chesapeake Energy, Largest US Natural advisor repre
Producer, Runs Gas Producer, Runs Out Of Cash for SitkaPaci
Out Of Cash Management
• LBO Boom Over reading...
- Ontario
Teacher's Pension YahooFinance is reporting Chesapeake Energy may
Plan Off The sell $1.8B stock to get cash.
Hook
• Case Shiller and Chesapeake Energy Corp., the nation's largest
CAR Analysis . producer of natural gas, seeks to raise up to $1.8 . Mish Audio
November 2008 billion through common stock sales in an effort to
Release fund its drilling and exploration activities and October 23, 2008
• Durable Goods mitigate the impact of lower natural gas prices on TDI Episode 80: Predicting
Orders And cash flow. DOWN
Consumer
Spending Plunge In two filings with the Securities and Exchange October 17, 2008
• Grim FDIC Commission late Wednesday, the company said it Commodity Watch Radio -
Quarterly will issue shares worth as much as $1 billion before markets Michael Hampton,
Banking Profile fees and also registered 50 million shares worth at
• State of New most $791 million for potential sale. August 24,2008
Jersey Is Insolvent Commodity Watch Radio -
• Government To Oklahoma City, Okla.-based Chesapeake said it Deflation? Part 1 James Tur
Commit Another will use proceeds from the $1 billion offering for Hampton, Mish
 $600 Billion On general corporate purposes, including fund
Mortgages, exploration, development and other capital
Another $200 expenditures. Boomp3.com
Billion on TALF
• Bailout Pledges The move would dilute holdings of shareholders,
Hit $7.7 Trillion who already suffered through a substantial decline
• Citigroup Bailout in Chesapeake's stock price this year. Shares closed
Raises Viability at $20.24 on Wednesday, off 73 percent from the
Questions For stock's $74 52-week high set this summer.
Entire Banking Top Ten Posts
System But the company said cash flow, borrowings and
Top Hot
• New York May cash on hand have not been enough to pay for
April Jobs - Another Report
Lose 225,000 capital expenditures.
World
Financial Jobs 4.97 (82
• Chesapeake has used up the remaining financing
Citigroup Bailout votes)
Terms of available under its $3.5 billion bank credit facility
Fed Uncertainty Principle
Agreement and only $251 million is left of another $460
4.90 (181
• million credit line. Credit markets remain tight with
Citigroup Bailout votes)
Agreement financial institutions under duress.
Dear Citigroup Customer ...
Reached CHK Daily Chart
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votes)
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State of the Petrobras Cash Shortage Credit Default Swap Tsunam
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A Citizen's Guide In Brazil, Petrobras Cash Shortage Led to Tax votes)
• Abolish The Fed Loan. Repackaged Mortgage Garb
Sign the Petition Petroleo Brasileiro SA was forced to borrow 2 4.92 (71
• Jekyll Island billion reais ($881 million) from Brazilian state- votes)
Edward Griffin - owned discount bank Caixa Economica Federal as Deflation In A Fiat Regime?
Creature From it faced “momentary difficulty” paying taxes, 4.85 (147
Jekyll Island Energy Minister Edison Lobao said. votes)
• 3 "Implode-O- Fed Defends The Indefensib
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Lenders known, said record profit in the third quarter votes)
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Recommended about 5 percent more than the 10.8 billion reais of
What Exactly Is The G7 pla
cash it had on hand at the end of September, the
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4.89 (76
votes)
Brazilian security regulator’s Web site.
• Tomorrow's Gold Congressional Insanity: Sue
• The Dollar Crisis Prices
“There were taxes that Petrobras had to pay that
• What Has 4.84 (136
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Government Done votes)
weren’t generated by operating profit but by the
to Our Money? Canada's Housing Boom Is
strengthening of the dollar,” Lobao told reporters in
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Brasilia. “The company had to take money out of
Lesson votes)
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Petrobras, which has spent more than 20 billion
• Master Traders votes)
reais on investment so far this year and paid $6.2
• The Disciplined Evidence of "Walking Away
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meet its obligations, Senator Tasso Jereissati said in
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a telephone interview.
• Empire of Debt The $1.1 Trillion HELOC P
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The cash-flow problems may also have forced
• The Coming votes)
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last 30 days, Jereissati said. Petrobras officials
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weren’t immediately available to respond to
• Trading in the votes)
Jereissati’s comments.
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• Confessions of a Crime In Buying AIG Time
Petrobras said about a third, or 3.5 billion reais, of
Subprime Lender 4.85 (106
its record 10.9 billion-real third-quarter profit was
• The Monetary votes)
the result of a 19 percent increase in the value of
Elite vs. Gold's Mish's Global Economic Tr
the dollar against the real in the quarter.
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votes)
Petrobras’s ability to generate cash and borrow may
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be further hurt by a 60 percent decline in the price
4.89 (69
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Lucas Brendler, an energy analyst at Banco
4.84 (107
• DollarCollapse Geracao Futuro in Porto Alegre, Brazil, said
votes)
• NowAndFutures yesterday.
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• Market Ticker in a shambles so prices may still go down more, but Bernanke's, Paulson's, Bair's
• Urban Digs we are sure it’s going to rebound.” Step
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• Kathy Lien The 13 members of OPEC, which supply more than votes)
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• SafeHaven third time in as many months to discuss a further 4.83 (90
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Mises Institute Secretary- General Abdalla el-Badri said today in Dumbest Merger Proposal I
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• Nouriel Roubini falling demand is clearly winning even though votes)
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(44 votes)
(32 votes)
(59 votes)
LBO Boom Over - Ontario Teacher's (52 votes)
Pension Plan Off The Hook (54 votes)
(115 votes)
(52 votes)
 (76 votes)
In the summer of 2007, the Ontario Teachers' (90 votes)
Pension Plan agreed to buy BCE (a phone (67 votes)
company) for an absurd price of C$52 billion ($42 (67 votes)
billion). The deal was supposed to close December (45 votes)
11. Now the deal appears to be falling through over (35 votes)
solvency issues. (61 votes)
(58 votes)
The Canadian Press is reporting BCE says (54 votes)
Teachers' buyout 'unlikely to proceed' if solvency (113 votes)
opinion not improved. (69 votes)
(141 votes)
Bell Canada's roller coaster ride to privatization (47 votes)
may finally crash under the weight of its (45 votes)
prospective massive debt after an accounting firm (66 votes)
raised serious doubt that the world's largest (116 votes)
leveraged corporate buyout could succeed. (89 votes)
(43 votes)
Bell parent BCE Inc. (BCE) said Wednesday a (66 votes)
KPMG analysis indicated the company could not (87 votes)
meet solvency tests in the agreement under which (73 votes)
the company will be acquired by an investor group
led by the Ontario Teachers' Pension Plan.

The opinion marked the latest hurdle for the $52-

billion cash and debt deal, the largest takeover in
Canadian history.

BCE said it disagrees, but "should KPMG be

unable to deliver a favourable opinion on Dec. 11, 'No One Could Have Pred
11/21/2008 4:45:00 PM
2008. (when the takeover is slated to close), the
transaction is unlikely to proceed."
What the Bear Market Has
11/26/2008 5:00:00 PM
Shares in the company were hammered down in
heavy trading to their lowest level in six years.
After falling to $23, they closed at $25.25, a drop EURUSD: Patience
11/25/2008 4:15:00 PM
of $13.10 or 34.16 per cent on the Toronto Stock
Exchange.
'Commodities Have Crash
11/24/2008 6:00:00 PM
KPMG indicated BCE meets solvency tests under
its current capital structure - but would not after
being weighted down with the debt involved in the GOLD: Not the 'Safe Have
Is
proposed takeover. In coming to its conclusion, 11/17/2008 4:30:00 PM
KPMG assessed the value of BCE's future
liabilities and assets that have eroded with the
European Stocks: Worst N
market meltdown.
BCE's underfunded pension liabilities are believed
to be one of several challenges faced by the
Montreal company.
Bottom?
10/31/2008 4:00:00 PM
Elliott Soifer, vice-president of Desjardins
Securities International, said he doubts the deal can If inflation is a quiet thief, th
be salvaged by altering terms, including the $42.75 armed burglar. You wouldn
purchase price. your home, yet chances are
two is stealing your money
first step toward protecting
But industry observers believe Teachers' and the understand which threat is
consortium of banks are likely delighted by the arise today: deflation or infl
KPMG opinion because it potentially clears a path important money-saving ste
to extricate themselves from a tightly written deal DETAILS>>
that was signed when market conditions were much
brighter.

They are also said not to be on the hook for a $1.2-

billion break fee, although the parties are expected
to pay tens of millions of dollars in banking and
legal fees. Posts from Calc
Citigroup and Toronto-Dominion Off The Hook
Too • Japan's Economy
stopped turning"
Bloomberg is reporting Citigroup, Toronto- • Everything you wan
Dominion Gain on BCE Transaction. China ...
Citigroup Inc., Toronto-Dominion Bank and • Happy Thanksgiving
Deutsche Bank AG gained after BCE Inc. said its • UK: "Woolies" to C
C$52 billion ($42 billion) takeover may collapse, Christmas; 30,000 Jo
helping the banks avert potential writedowns from • The Slowdown in Ch
financing the world’s second- largest leveraged
buyout. Posts from Naked
Citigroup, Toronto-Dominion, Deutsche Bank and • Links 11/27/08
Royal Bank of Scotland Group Plc are on the hook • AIG Plans to Pay Re
for about $34 billion for financing the BCE Executives
takeover, according to regulatory filings. The banks • China's Economic S
face potential writedowns because the global credit Accelerated in Nove
crisis has pushed down loan values, and made it • Gentrifying Gitmo
harder for the lenders to find other banks willing to • Links 11/26/08
take on some of the debt.

The lenders have already taken writedowns from

the credit crisis. The U.S. government agreed on
Nov. 23 to support Citigroup with a $20 billion
capital injection and a shield against losses on $306
billion of loans. Toronto-Dominion was forced to
sell as much as C$1.38 billion in common shares
this week to shore up its balance sheet after posting
trading losses.

“It would have been nearly impossible,” to sell the

loans, said Ron Mayers, vice chairman and head of
alternative strategies of Desjardins Securities Inc.
in Montreal. “Obviously that had negative financial
implications for them.”

The buyout group led by the Ontario Teachers’

Pension Plan agreed to buy BCE in June 2007.
Toronto-based Ontario Teachers’ is the largest
shareholder of Montreal-based BCE.
Previously the Québec Pension Plan (Caisse) and
the Ontario Teachers' Pension Plan were on the
hook for some $33 billion in ABCP. See 20
Canadian ABCP Trusts File Bankruptcy.

Where there's slush, figure Citigroup and the

Ontario Teachers' Pension Plan will be deep in it.

Leveraged Buyout Boom Is Over

Bloomberg is reporting LBO Boom’s Last Vestiges

Would Disappear With BCE Deal’s Demise.
The C$52 billion ($42 billion) purchase of BCE
Inc. by private-equity firms may collapse, erasing
the last vestiges of a leveraged-buyout boom that
ground to a halt almost 18 months ago.

The BCE deal, led by Ontario Teachers’ Pension

Plan, Madison Dearborn Partners LLC and
Providence Equity Partners Inc, is biggest remnant
of a record $1.42 trillion of LBOs in 2006 and
2007. Its demise would be more evidence of how
private- equity firms have shifted from multibillion-
dollar buyouts to shopping for distressed companies
amid a dearth of financing and a deepening global
recession.

“BCE is really an Old World transaction,” said

Randy Schwimmer, senior managing director and
head of capital markets of New York-based
Churchill Financial LLC. “In the New World,
private equity buyers are looking to tease out value
wherever it can be found, whether that’s in smaller
new issues, distressed paper or mining their own
portfolios.”

Announced private-equity deals have dropped more

than 70 percent to $202 billion so far this year,
according to data compiled by Bloomberg. The
biggest transaction this year was the $7 billion
stake bought by investors led by TPG Inc. in
Washington Mutual Inc. That investment
evaporated five months later when the U.S.
government seized Washington Mutual’s assets,
wiping out the TPG-led group’s $2 billion in
equity.

At least $55 billion of LBOs have fallen apart since

last year. The botched transactions include J.C.
Flowers & Co.‘s agreement to buy SLM Corp., the
student lender known as Sallie Mae; casino
operator Penn National Gaming Inc.‘s deal with
Fortress Investment Group LLC; and KKR’s plan
to buy Harman International Industries Inc.

“It’s easy to imagine a scenario where we don’t

have normalized markets again until 2011,” said
Sean Ryan, an analyst at Sterne, Agee & Leach in
New York. He pointed to the 1988 purchase by
KKR of RJR Nabisco Inc., the $30 billion which
stood as the biggest LBO on record until 2006.

“After all, how many years did it take for RJR

Nabisco to get eclipsed?” Ryan said.
BCE Weekly Chart

click on chart for sharper image

The Ontario Teachers' Pension Plan is the largest

shareholder of BCE. If the deal collapses, the
teachers can thank their lucky stars they are not the
only shareholder.

Canada May Have First Deficit Since 1997

While on the subject of Canada, inquiring minds
are noting Canada May Project First Deficit Since
1997
Canadian Finance Minister Jim Flaherty probably
will project the government’s first deficit in 13
years today as revenue evaporates, and may
confirm the world’s eighth-biggest economy is on
the brink of a recession.

“Don’t worry about the deficits,” said Mike

McCracken, chairman of forecasting company
Informetrica Ltd. in Ottawa.

At a meeting this month of the Group of 20

industrialized and emerging economies in
Washington, International Monetary Fund
Managing Director Dominique Strauss-Kahn urged
nations to inject stimulus worth 2 percent of gross
domestic product. For Canada, that would represent
about C$30 billion.

Harper himself said the day before that Canada

would run a “short-term” deficit to stimulate the
economy if necessary, though he would seek to
avoid a series of deficits that would outlast a period
of sluggish growth.

The government must help companies in the auto

industry immediately, because “they might run out
of money within weeks, and it’s quite possible
they’ll be bankrupt if we wait until February,” John
McCallum, a Liberal Party legislator and former
chief economist with Royal Bank of Canada, said
yesterday.

“We’re seeing consumers being very careful with

their spending -- they’ll fix something when it
breaks, but when it can wait, it waits,” said Richard
Roy, president of Boucherville, Quebec-based
automotive-parts distributor Uni- Select Inc.

“All the economists who seem worth listening to

are saying you have to spend in order to get out of a
situation like this,” said Laura Singleton, 49, a
homemaker visiting Parliament with her family
from Rainy River, Ontario. “My understanding is
that we aren’t doing any measures like that at the
moment. I am wondering why.”
Don't Worry About Deficits Just Spend

Financial insanity is nearly everywhere you look.

CBCNews is reporting Flaherty hints at early

budget to stimulate economy.
Finance Minister Jim Flaherty may table the next
federal budget early to include infrastructure
spending and other provisions to stimulate the
ailing economy.

He said any package could be included in a sooner-

than-scheduled budget, although he did not give a
specific date. His officials also suggested that
announcing stimulus measures before the next
budget is a possibility.

Flaherty noted that the government has already

committed to a $33-billion infrastructure fund that
needed to begin releasing money sooner rather than
later.

On Sunday, at the Asia-Pacific Economic

Cooperation group's summit in Lima, Prime
Minister Stephen Harper made similar comments
that the economy appears headed for a technical
recession and might have already slowed to "just
about zero" growth.

Harper also suggested during the summit that the

Canadian government will introduce a stimulus
package to boost the economy, while trying to
avoid setting the stage for a long-term government
deficit.

Signalling a shift in his usual anti-deficit stance, he

acknowledged that countries that choose to
implement fiscal stimulus packages will likely find
it necessary to run budgetary deficits.

The prime minister noted, however, that whatever

short-term new spending his government pursues, it
"will ensure that Canada does not return to long-
term structural budgetary deficits."
Canadian Reality

The reality is Canada is in a recession, that

recession is going to pick up steam, and there is
nothing Canada can do about it that makes any
sense.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
LBO Boom Over - Ontario Teacher's Pension Plan
Off The Hook
Posted by Michael Shedlock at 4:10 AM .... Print ....
Email

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clients in your inbox every month, register your
email address at the bottom of the Sitka Pacific
Commentary Page.

Buy Gold and Silver Online at GoldMoney

The Best Way to Buy Gold and Silver

Disclaimer:The content on this site is provided as

general information only and should not be taken
as investment advice. All site content, including
advertisements, shall not be construed as a
recommendation to buy or sell any security or
financial instrument, or to participate in any
particular trading or investment strategy. The
ideas expressed on this site are solely the opinions
of the author(s) and do not necessarily represent
the opinions of sponsors or firms affiliated with the
author(s). The author may or may not have a
position in any company or advertiser referenced
above. Any action that you take as a result of
information, analysis, or advertisement on this site
is ultimately your responsibility. Consult your
investment adviser before making any investment
decisions.

Comment Guidelines: Comments should be

succinct, constructive and relevant to the story. We
encourage engaging, diverse and meaningful
commentary. Comments that include personal
attacks, racial, religious, or ethnic slurs are not
permitted. We continuously review and remove any
inappropriate comments.

Comments (0)

Wednesday, November 26, 2008

Case Shiller and CAR Analysis November

2008 Release

California Association of Realtors C.A.R. Data

The following chart is from my friend "TC" who

has been monitoring California Association of
Realtors (C.A.R.) and DQNews data. C.A.R. data
contains resale single family residences and new
homes. DQNews data contains resale single family
residences and new homes.

Median nominal prices in CA are now down 47%

according to CAR and 42% according to DQNews -
and those declines are in less than 18 months!

Case-Shiller is a more accurate way of looking at

home prices than median prices. Case-Shiller data
follows.

Case Shiller November Release

Inquiring minds are considering the Case Shiller

Home Price Release for November 2008.

New York, October 28, 2008 – Data through

August 2008, released today by Standard & Poor’s
for its S&P/Case-Shiller1 Home Price Indices, the
leading measure of U.S. home prices, shows
continued broad based declines in the prices of
existing single family homes across the United
States, a trend that prevailed throughout the first
half of 2008 and has continued into the second half.

The chart below depicts the annual returns of the

U.S. National, the 10-City Composite and the 20-
City Composite Home Price Indices. The decline in
the S&P/Case-Shiller U.S. National Home Price
Index – which covers all nine U.S. census divisions
– remained in double digits, posting a record 16.6%
decline in the third quarter of 2008 versus the third
quarter of 2007. This has increased from the annual
declines of 15.1% and 14.0%, reported for the 2nd
and 1st quarters of the year, respectively. The 10-
City and 20-City Composites continue to set new
records, with annual declines of 18.6% and 17.4%,
respectively.

click on chart for sharper image

Case-Shiller Declines Since Peak

The following charts were produced by my friend

"TC" who has been monitoring Case-Shiller Data.
Although individual cities topped at varying times,
the top-10 and top-20 city composites peaked in a
June-July 2006 timeframe.

Case-Shiller Declines Since Peak Current Data

click on chart for sharper image

Case-Shiller Declines Since Peak Futures Data

click on chart for sharper image

"TC" writes:
The housing numbers are as grim as expected. The
CAR housing numbers reflect Oct 2008 which are
actual sales in late August and September (read pre-
market meltdown). The price declines range from
30% to 60% with median price declines between
$130,000 and $800,000.

It now appears that the high end market price

declines are picking up steam and will likely mirror
the price declines of the bottom and middle end
markets. More and more of my friends and friends
of friends (many of whom did NOT leverage
themselves like typical Californians) are talking
about walking away from their homes. The fact that
upper middle class Californians some of who put
5%, 10% or even 20% down would even consider
walking away tells you the scope of the problem.

The Case-Shiller numbers are for September 2008

which do not reflect any of the market meltdown.
Price declines in excess of 10% are now occurring
nearly everywhere, although the median dollar
declines are only above $100,000 in those markets
that experienced extreme price appreciation (CA,
AZ, NV, FL). The trading in the futures markets
continues to reflect nominal price declines for the
next 2-3 years with prices plateauing afterwards
(they only price out 60 months forward.
Thanks "TC"

With unemployment poised to rise in 2009 it is

extremely unlikely that housing bottoms anytime
soon.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Case Shiller and CAR Analysis November 2008
Release
Posted by Michael Shedlock at 2:38 PM .... Print ....
Email

To receive a free copy of our monthly letter to

clients in your inbox every month, register your
email address at the bottom of the Sitka Pacific
Commentary Page.

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 Disclaimer:The content on this site is provided as
general information only and should not be taken
as investment advice. All site content, including
advertisements, shall not be construed as a
recommendation to buy or sell any security or
financial instrument, or to participate in any
particular trading or investment strategy. The
ideas expressed on this site are solely the opinions
of the author(s) and do not necessarily represent
the opinions of sponsors or firms affiliated with the
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