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Thursday, April 24, 2014 1:07 PM


Verge of War: Ukraine's Foreign Minister says "We are Ready to Fight"; Russia holds Military Exercises on Border


Tensions in Ukraine took another step for the worse today as Russia held military exercises on the border and Ukraine's foreign minister responded "We are Ready to Fight Russia"

Andriy Deshchytisa said Russia’s decision Thursday to launch the military exercises “very much escalates the situation in the region.”

Talking to The Associated Press in Prague, Deshchytisa says his country has been taught a lesson by Russia’s annexation of Ukraine’s Crimean Peninsula. He says “having this experience, we will now fight with Russian troops if ... they invade Ukraine.”

He says “Ukrainian people and Ukrainian army are ready to do this.”
Russia holds Military Exercises on Border

The Financial Times reports Russia Plans Military Exercises After Mounting Ukraine Unrest.
Russia has announced military exercises on the border of Ukraine, hours after Kiev sent in its army to flush out armed pro-Russian rebels in the east of the country raising fears about the worsening crisis.

As tensions on the ground escalated, the war of words between Moscow and Kiev also intensified. Russia’s President Vladimir Putin warned Ukraine there would be consequences for sending its armed forces into the volatile east to oust separatists from government buildings and checkpoints. Ukraine’s acting president Oleksandr Turchynov retaliated on national TV, accusing Russia of “co-ordinating and supporting killer terrorists”.

The two leaders’ remarks came shortly after Ukraine’s army began a big security offensive against the separatist stronghold city of Slavyansk on Thursday, making good on its vow to crack down on armed rebels holding public buildings in the country’s east.

But there were reports that Ukrainian troops had withdrawn from a checkpoint north of Slavyansk they had taken over earlier in the day and pro-Russian separatists had moved back in and began to strengthen the position with sandbags.

Tensions have been rising in eastern Ukraine after the tortured body of a local politician – allied to Kiev – was discovered in a river near Donetsk.
Obama Warns Russia Sanctions ‘Teed Up’

For sake of completeness, meaningless red line talk comes from president Obama who warns, Sanctions ‘Teed Up’
Mr Obama said that it was “a matter of days, not weeks” before new sanctions would be levelled on Russia unless it took decisive steps to reduce the tensions in eastern Ukraine.

The new round of US sanctions is likely to target more of the business figures around the Russian leader Vladimir Putin as well as potentially some banks or state-owned companies. US officials have said that the broader, sectoral sanctions that the White House now has the power to impose are only likely if there is an explicit Russian military intervention in eastern and southern Ukraine.

Danylo Lubkivsky, Ukraine’s deputy foreign minister, said on Thursday that it was time to impose new sanctions on Russia. Speaking on a visit to Washington, he said he still hoped for a diplomatic resolution to the crisis, but he insisted that “Russia has already crossed a new red line, so we need to impose further economic pressure on the Kremlin”.

Zbigniew Brzezinski, the former US national security adviser, said that events in Ukraine were quickly spinning out of control. “I fear we are stumbling into a crisis which is unpredictable,” he said. “But I still think there is a residual chance for reaching some sort of accommodation.”
I still suspect cooler heads will prevail. Let's hope so. Perhaps it would help if Ukraine repeated its offer of amnesty to rebels who lay down their weapons now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wednesday, April 23, 2014 7:15 PM


French Telecom Company Does Biggest Junk Bond Sale Ever; Bidding Wars for Junk; AOL Flashback


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

12:59 PM


New Home Sales Plunge 14.5%; It's Not the Weather; Steen Jakobsen on Consensus vs. Reality


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


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