Wednesday, February 1, 2012

Signing Global Warming’s Certificate of Death Alan Caruba

Yet another article on the hoax of global warming. Aivars Lode



Signing Global Warming’s Certificate of Death Alan Caruba
The sixteen names of the scientists who jointly signed the article in The Wall Street Journal, “No Need to Panic About Global Warming” on January 27th are mostly unknown to the general public. Perhaps the best known would be Harrison H. Schmidt, a former Apollo 17 astronaut and U.S. Senator. Others might recognize Burt Rutan, an aerospace engineer and designer of Voyager and SpaceShip One.
Moreover, not only were the signers distinguished scientists, but they came from places like Paris, France and Cambridge, England, Jerusalem, Israel, and Geneva, Switzerland. Mostly climatologists and meteorologists, some were physicists and astrophysicists. Antonio Zichichi, one signer, is president of the World Federation of Scientists. Not to put too fine a point on it, but the combined credentials of these men represent some of the best minds on planet Earth in their respective fields. What brought them together? On the surface it was just another of the countless articles that have been published over the years as scientists of real merit and courage took on the juggernaut of those for whom global warming had become a vast flow of government and foundation funding.
The effort was to “prove” that carbon dioxide (CO2) was building up in the atmosphere and would soon incinerate Earth by trapping the heat from the sun. It had not done that in the 5.4 billion years of the Earth’s existence, but the “warmists” claims came day after day and year after year. They permeated every aspect of society and you can go into any school in America and find textbooks still selling this garbage.
Until, that is, 2009 when thousands of emails between the small clique of scientists working for the United Nations Intergovernmental Panel on Climate Change were leaked on the Internet and it became clear that even they knew the Earth had entered a cooling cycle around 1998. The challenges to their bogus computer “models” were coming like cannon balls against their academic castles in America and England.
Starting in 2008, The Heartland Institute, a Chicago-based 27-year-old, non-profit research organization, sponsored four international conferences on climate change, attracting the top scientists and world leaders courageous enough to speak out against the global warming hoax. The momentum of opposition began to build against those who, from the late 1980s had warned that, in Al Gore’s words, “the world has caught a fever.”
The Wall Street Journal article said, in the plainest language, that candidates for public office “in any contemporary democracy…should understand that the oft-repeated claim that nearly all scientists demand that something dramatic be done to stop global warming is not true.”
In fact, scientists had been signing petitions opposing the global warming hoax for a very long time. The problem was that the mainstream media either paid them no attention or dismissed them as “skeptics” and “deniers”.
With a light touch, the Wall Street Journal article noted that “Perhaps the most inconvenient fact is the lack of global warming for well over ten years now.” It wasn’t as if the warmists did not know it. It was more like they regarded it as a problem to be solved by changing references to global warming to “climate change.”
Their current dying gasps have to do with warnings about “extreme climate events” that have been occurring for eons; tornadoes, hurricanes, blizzards, floods and earthquakes; now all routinely attributed to too much carbon dioxide.
The article calmly said, “The fact is that CO2 is not a pollutant.” Indeed, more CO2 in the atmosphere is a good thing, aiding increasing crop growth and healthier forests and jungles worldwide.
Someone needs to tell that to the Environmental Protection Agency that is striving mightily to shut down coal-fired energy plants for emitting CO2. Add their efforts to do the same to a wide swatch of American industry and you get an agency that is in great need of being abolished.
“There is no compelling scientific argument for drastic action to ‘decarbonize’ the world’s economy.
In time, historians may look back and conclude that the January 27th article was, in fact, global warming’s death certificate, signed by an international group of scientists who could not be disputed no matter how many times the warmists jump up and down and cry that the sky is falling.
It has taken a very long time for most of the public to come to the conclusion that they have been the object of an elaborate hoax.In America polls demonstrate that global warming is at the very bottom of their concerns these days. In time, wind and solar power, electric cars, biofuels, and other environmental delusions will join that list.
© Alan Caruba, 2012 Contributing Editor Alan Caruba writes a daily commentary, “Warning Signs”, posted on his blog An author, business and science writer, he is the founder of the National Anxiety Center. His book, “Right Answers: Separating Fact from Fantasy”, is published by Merrill Press.


I am thinking that you will find this very interesting and it partially tells the story of why the euro will not collapse. Thanks Bud Aivars Lode


News out of Brussels last night was that a package is being put together that would haircut Greek bonds by 70%, thus only paying back 30 cents on the dollar to anyone holding Greek paper. This will set a precedent that will eventually be played out all over Europe.Full AP story HERE.

This is extremely bad, and will spell the end of the big U.S. banks and the financial system in total. But EVERYONE needs to understand credit default swaps (CDS) first. CDS are insurance policies that investors have traded – very similar to OPTIONS for my old clients and cattle people out there. Buying a CDS is essentially like buying a put. The buyer pays a premium, or fee, to the writer, or seller of the CDS that says that the seller will guarantee and make whole the buyer’s position in a specific bond IF the entity behind the bond (such as Greece) defaults. In exchange for paying the premium and being made whole after a default, the buyer of the CDS surrenders the bond position to the seller of the CDS, and the seller gets to keep both the premium paid plus gets to keep any salvage value of the defaulted bond.

So the CDS buyer pays a premium or fee, and the seller guarantees against a default but gets to take ownership of the bonds and keep any salvage value if a default does happen.

Here is what I STRONGLY suspect is going to happen with this 70% haircut plan.
The bondholders are going to take the full brunt of the 70% haircut, BUT the body that actually dictates whether or not a default has happened – the International Swaps and Derivatives Association (ISDA) – will declare that this credit event is NOT a default, and thus all of the banks and entities that THOUGHT that their European debt positions were hedged with CDS will find out that they have no protection at all. And then the excrement hits the fan. Big time.

The argument that the ISDA will make is that a 70% haircut isn’t a default. This is, of course, abject horse manure. Try paying only 30% of your mortgage and see how quickly the word “default” is used. They are using the 70% figure because a 30% payout is just enough to make the legalistic argument that a FULL default hasn’t occurred - which makes NO SENSE because salvage value is one of the core concepts in CDS contracts. The SELLER GET THE RIGHTS TO THE SALVAGE VALUE, which by definition implies that the default need not be 100% in order to execute the CDS. ARRGGHH!!!!

The obvious question is, WHO IS IT THAT HAS WRITTEN ALL OF THESE CREDIT DEFAULT SWAPS, because they are going to make off like bandits. They are going to have received all of the premium, the default event will have happened, and they won’t have to pay out. Like the old Dire Straits song says, “Money for nothin’ and chicks for free.” Fish in a barrel. Lambs to the slaughter. Candy from a baby.

I will venture a guess as to who two of the largest writers of Eurotrash CDS might be. How about . . . oh, I dunno, Goldman Sachs and J.P. Morgan? Guys, what MF Global was doing with customer funds – “hypothecating” and leveraging the customer money into European bond positions “hedged” with credit default swaps – THEY’RE ALL DOING IT. All of the brokerage houses. All of the investment firms. All of the retirement account custodians. ALL OF THE BANKS. I can almost promise you that Goldman Sachs and J.P. Morgan have been sitting on a net short position in Europe, quietly betting against European paper, all the while pimping and selling long European positions (It will be fine! The bailouts will come!) AND happily selling TRILLIONS of dollars worth of CDS to their customers to “guarantee” the customers’ long-Europe positions against default, knowing full well that Europe WOULD collapse. (Duh. Anyone who can do 2nd grade math knows that.) When the collapse happened they knew from the beginning they WOULD NEVER HAVE TO PAY OUT ON THE CREDIT DEFAULT SWAPS THAT THEY WROTE because the ISDA was populated BY THEIR OWN PEOPLE, and the ISDA would therefore never declare a default. They would therefore pocket the premium received, but most importantly would then swoop in and BUY UP ALL OF THE BANKS AND BROKERAGES DESTROYED BY THEIR UNHEDGED NET LONG-EUROPE POSITIONS.

Think about it. Why would a Goldman or a J.P. Morgan write trillions of dollars of CDS on Europe in the first place? CDS aren’t like regular options. CDS are binary in their outcome. Either there is no default, or there is, and the payout required would be massive. There is no middle ground. There is no “moderate” payout on a CDS. It is either all-or-nothing. Why would Goldman and J.P. Morgan write these CDS contracts knowing full well that Europe was mathematically impossible to save and thus guaranteed to default, and that the inevitable European default would then lead to demands for payout that were – again – mathematically impossible? We are talking tens if not hundreds of trillions of dollars. We are talking multiples of the size of the entire economy of the U.S. - and that is just the exposure of ONE BANK (i.e. JPM @ $78TTT). There is no possible way to payout on that. It seems to me that these CDS writers knew from the start that they would never have to payout. They knew that their people in the ISDA would never declare a default, but would always leave some trifling payout to “legally” skirt default. If it ever got to the point that there was a full default, World War 3 would be the result and thus the entire point would be moot. The bankster oligarchs would at that point be moving fully to declare a new totalitarian world government and abolish and seize all private property. Game over.

Tuesday, January 31, 2012

Dividend stocks: Buyer beware

As predicted previously in this blog people are looking for yield. Aivars Lode

January 31, 2012: 5:00 AM ET With bonds, CDs, and money markets offering paltry payouts, it's no wonder investors are looking for better returns. They just need to know what they're getting into.
FORTUNE -- There's one group of people who aren't cheering Ben Bernanke's announcement last week that the Federal Reserve expects to keep interest rates ultra-low through 2014: people of modest means who live off their interest income.
As I've been pointing out since 2007, the Fed has eviscerated the income of prudent savers in its attempt to repair the economic damage caused by imprudent borrowers and lenders. I believe that the Fed, whose job is to protect the financial system and promote employment, is acting in the best interests of the country at large. But what's helping the overall economy is hurting savers.
The people with the biggest problem are those who saved all their lives and are now supplementing their Social Security retirement checks with interest income. With that income cut sharply -- five-year Treasuries yield less than 1%, and yields on certificates of deposit are microscopic -- these people have three options, all of them unpleasant: reducing their standard of living as their income drops; eating into their principal; or taking on more risk in order to generate more income.
Risk has become a popular option, which helps explain why dividend-paying stocks are in vogue. Last year, the dividend-paying stocks in the Standard & Poor's 500 returned 5.3% more than non-dividend payers, according to Aronson Johnson Ortiz, a Philadelphia money management firm. That's a sharp reversal from 2010 and 2009, when non-dividend payers outperformed by 1.6% and 35.6%, respectively.
10 best stocks for 2012
Part of the reason for last year's outperformance, I'm sure, comes from lots of money, including a chunk of mine, being plowed into dividend-paying stocks because bonds and CDs yield so little, and you need an electron microscope to find the yield on money market mutual funds (my main money fund's current yield: a whopping 0.01%).
Recommending dividend stocks has become the conventional investment wisdom, and understandably so. However, if you're joining the dividend-seeking hordes, you need to realize that you're taking a much bigger risk than owning CDs or bonds.
CDs are guaranteed by the federal government. Bondholders are first in line to get paid, and ultimately get their principal back if the issuer doesn't default. But a dividend-paying stock is a whole other story.
Common shareholders are the last in line to get paid, not the first. As many bank stockholders discovered to their sorrow when the financial crisis struck, dividends can be cut sharply or even eliminated if a company runs into trouble, or needs to conserve capital.
In addition to income risk, stockholders have price risk, too. They have no guarantee of getting back the price they paid for the stock. If a stock's annual dividend is, say, 3% of its market price the day you buy it, a hiccup or two can wipe out several years of interest income.
"While a dividend-paying stock can feel like a bond, at some point market volatility will slap you with a painful reminder that it's not," says Stefani Cranston of Aronson Johnson Ortiz. "And, if 2011 was any indication, one thing you can count on is market volatility."
The bottom line: If you go the dividend route, which is what I've done because I'm 67 and may not be employed full-time forever, make sure you understand what you're getting into. Make sure you can afford the losses if you pick some wrong stocks or wrong mutual funds, which even the most astute investor does occasionally. Yes, a 3% dividend yield is vastly more attractive than a 1% interest yield. But remember that the added income comes with greater risk. It's the one economic rule that never changes: There's no such thing as a free lunch.

Monday, January 30, 2012

This is why we created a Merchant Bank and offer low risk mid teen secured returns on our alternate asset class fund


Private equity under scrutiny

Bain or blessing?

The buy-out industry is under attack for destroying jobs. Its returns to investors are the real problem

Jan 28th 2012  | The Economist 


IF STEVE SCHWARZMAN thought it was valid in 2010 to compare Barack Obama’s “war” against business to Hitler’s invasion of Poland, what can he be thinking now? Private-equity executives must be hoping the boss of Blackstone will keep his opinions to himself. More bad publicity is the last thing the industry needs. Other Republican presidential candidates are competing to see who can say the most damning thing about Mitt Romney’s career at Bain Capital. Newt Gingrich’s supporters have even made a sort of horror movie about what happens when private-equity firms like Bain Capital get their hands on otherwise healthy companies.
The buy-out bit of the industry, which buys mature companies, fixes them up and sells them on, is the one on trial (few have a bad word for venture capital, which invests in start-ups). It is charged with destroying the jobs of ordinary people while enriching the likes of Mr Romney.
Examples of dud deals are not hard to come by. The tax code’s treatment of debt (with interest on debt payments being tax-deductible) and private equity’s thirst for profits have at times driven the industry to saddle companies with too much debt. Between 2004 and 2011 private-equity firms heaped more debt on their companies so they could take out a staggering $188 billion in dividends for themselves, according to Standard & Poor’s Leveraged Commentary & Data, which tracks the industry.
But private equity isn’t employment’s grim reaper. Buy-out firms usually set their sights on companies that they can improve, which means they may buy weaker or more bloated ones in the first place. A recent NBER working paper looked at employment after 3,200 leveraged buy-outs in America. It found that private-equity ownership resulted in both more rapid job destruction and faster job creation than other forms of ownership. Two years after a buy-out, employment declines by 3% on average; if acquisitions, divestitures and new sites are included the losses are only 1% of initial employment. Other research has found that wages do not rise as quickly at private-equity-owned firms, probably because buy-out firms try to control costs after a takeover. But wages also don’t plummet, which may be why unions that used to oppose buy-outs have moderated their criticisms.
In any case, it is not the mission of buy-out firms to create jobs. Their mandate is to produce higher risk-adjusted returns, and this is where private-equity firms should be judged more harshly. The industry has long boasted about its earth-shattering performance. Investors, and public-pension funds in particular, have piled into the asset class. But the bulk of investors’ capital has gone into funds that were raised when asset prices were at peak levels (see chart 1). Although fears of a bloodbath among bubble-era buy-outs have not yet been realised, returns for most of these funds are going to be middling at best.
Nor is there conclusive evidence that private equity consistently outperforms public companies, although certain high-performing firms undoubtedly do. A recent attempt to analyse private-equity performance, by Robert Harris of the University of Virginia’s Darden School, Tim Jenkinson of Oxford University’s Saïd Business School and Steven Kaplan of the University of Chicago’s Booth School of Business, concludes that it is “very likely” that private equity outperforms the S&P 500 (after fees). But the outcome looks different depending on which database is used. These vary wildly (see chart 2), and none has returns for all funds. The study emphasises a new data set, which could make things look rosier because the worst-performing funds may not be sufficiently represented.
The bigger issue
There is also a question about how private-equity firms calculate their returns. The internal rate of return (IRR) is the usual measure. But according to a 2010 study by Peter Morris, a former banker, entitled “Private Equity, Public Loss?”, it is rare for two firms to calculate IRR in the same way. This can complicate any attempt to compare funds. IRRs can also overstate the actual returns investors realised, according to Ludovic Phalippou at Amsterdam Business School, since the measure implies that the return was achieved on all the investor’s cash, even if some of it was given back early and reinvested at a lower rate.
The S&P 500 may not even be a fair benchmark for private-equity firms, says Mr Phalippou, since most buy-out firms purchase midsized companies, which have performed better than the big firms included in the S&P 500. An index of mid-cap stocks could offer a more accurate comparison, but also a higher hurdle for private-equity firms to jump.
Why would investors put money with private-equity managers who aren’t that good? It could be that investors herd mindlessly into asset classes. But some of it may also reflect the way the industry manipulates data. “Every private-equity firm you talk to is first-quartile,” quips Gordon Fyfe, the boss of PSP Investments, a C$58 billion ($58 billion) Canadian pension fund.
Oliver Gottschalg of HEC School of Management in Paris looked at 500 funds, and 66% of them could claim to be in the top quartile depending on what “vintage year” they said their fund was. The vintage year is supposed to be when the fund has its final “close” and stops fund-raising. But some firms may decide to use the year they started raising the fund or had their first “soft” close (when a fund is no longer officially open to new money), if it allows them a more favourable benchmark.
If investors can work out a way to place their money with funds that are actually in the top quartile, it is probably worth the fees and the extra risk of investing in this illiquid, leveraged asset class. But that is a big if. David Swensen, the man who runs Yale’s $19.4 billion endowment and a noted proponent of alternative investments, has written that “in the absence of truly superior fund-selection skills (or extraordinary luck), investors should stay far, far away from private-equity investments.”
Abuzz about fees
Buy-out executives have always claimed their interests are perfectly aligned with those of their investors, since they can only eat if their investors do. But that has changed as private-equity firms have morphed from small outfits into behemoths managing billions of dollars. Private-equity firms usually charge a 2% annual fee to manage investors’ capital and then take 20% of the profits. Big firms can now support themselves just from management fees. A study by Andrew Metrick at Yale School of Management and Ayako Yasuda at the University of California, Davis finds that private-equity firms now get around two-thirds of their revenues from fixed fees, regardless of performance.
If all that wasn’t bad enough for investors, the prospects for future returns look dim. Higher debt has accounted for as much as 50% of private equity’s returns in the past, according to a 2011 study co-written by Viral Acharya of New York University’s Stern School of Business. But banks are not lending as much as they did five years ago, increasing the amount of equity that firms are having to stump up (see chart 3). That will cap returns. “Employees are going to make less money, and firms are going to make less money. Returns are going to be much more mundane,” is the gloomy prediction of the boss of one of the largest private-equity firms.
Prices have also remained painfully high. Last year the average purchase-price multiple for firms bought by private equity was 8.4 times earnings before interest, tax, depreciation and amortisation, higher than it was in 2006. That’s because the industry is sitting on $370 billion in unused funds, or “dry powder”, that firms need to spend soon or risk giving back to investors, which means there is fierce competition for deals. Many transactions are between private-equity firms, which does little good to investors who have placed money with both the seller and the buyer.
With the option of financial engineering basically gone, private-equity firms have no choice but to improve the businesses they buy. Every private-equity firm boasts about its “operational” skills but sceptics question whether private-equity executives are that good at running companies. A senior adviser at a big buy-out firm and former boss of a company that was bought by private equity says he disagrees that buy-out executives are good managers of businesses: “They’re even less in touch with the real world than public-company managers. They’re a group of very clever, very analytical people paid lots of money whose general feel for the businesses is pretty poor.” Their edge, he says, comes from having a fixed investment term, which helps focus managers’ minds.
With the landscape bleaker than it was, many private-equity firms are reinventing themselves. Most buy-out firms now prefer the fluffy title of “alternative asset manager”. They have started to do more “growth equity” deals, taking minority stakes in companies and using less debt. This has been their strategy in emerging markets like China, where control and highly leveraged deals are not as welcome, but now the approach is also increasingly being used in the West. Big American firms like KKR, Carlyle and Blackstone have all expanded or started other units focused on things like property, hedge funds and distressed debt.
Many private-equity firms will quietly fade away, although Boston Consulting Group’s infamous prediction in 2008 that 20-40% of the 100 largest buy-out firms would go extinct has not yet come true. That is probably because private-equity firms take a long time to die. There are 827 buy-out firms globally, according to Preqin, a research firm. They will not all be able to raise another fund. European private-equity firms are particularly vulnerable because they have not diversified as much as their American competitors.
But Mr Romney’s candidacy will ensure that American firms feel more political heat. Executives’ special tax treatment, under which their profits are taxed as capital gains rather than income, will almost certainly go. The limelight has not yet scared off the 236 buy-out funds that are in the market trying to raise another $172 billion. But it is not as much fun as it was. “Back in 2005 fund-raising was like having a velvet carpet with a rope,” says one buy-out boss. “You had a bouncer and only let the prettiest people in. Now it’s buy one, get one free, and free entrance before 11.”

Private Equity and Employment”, by Steven Davis, John Haltiwanger, Ron Jarmin and Josh Lerner, The National Bureau of Economic Research, September 2011
Private Equity Performance: What Do We Know?”, by Robert Harris, Tim Jenkinson and Steven Kaplan, September 2011
The Economics of Private Equity Funds”, by Andrew Metrick and Ayako Yasuda, June 2011
Why More than 25% of Funds Claim Top Quartile Performance”, by Oliver Gottschalg, February 2009
Corporate Governance and Value Creation: Evidence from Private Equity”, by Viral V. Acharya, Oliver Gottschalg, Moritz Hahn and Conor Kehoe, June 2011
Private Equity Returns: Persistence and Capital Flows”, by Steven Kaplan and Antoinette Schoar
“Private Equity, Public Loss?”, by Peter Morris, Centre for the Study of Financial Innovation, July 2010
What are the Wage Consequences of Leveraged Buyouts, Private Equity and Acquisitions in the UK?”, by Kevin Amess, Sourafel Girma and Mike Wright, September 2008
Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions”, IMF Staff Discussion Note, by Ruud A. de Mooij, May 2011
Leveraged Buyouts and Private Equity”, by Steven Kaplan and Per Strömberg, June 2008
Who Benefits from the Leverage in LBOs?”, by Tim Jenkinson and Rudiger Stücke, February 2011
from the print edition | Finance and economics