Month: February 2014

"Markets were over-priced coming into 2014," warns Sam Zell (noting that he does not believe in the Fed's wealth effect perspective on market-growth helping buying and selling decisions in the real economy), but while he sees a benign outlook for residential real estate, among his biggest concerns are "half-assed" Obamacare's "deleterious effect on the USA" and its "need to be radically changed." Supportive of Carl Icahn and his 'capitalist activism', Zell adds rather frankly that he believes Tom Perkins was correct about the "the 1%… for political convenience," and reminds Bloomberg TV's Betty Liu that "the politics of envy, the politics of class warfare are what has separated America from many parts of the rest of the world," until now.

 

On Activisim:

ZELL: Well, the answer is I think activism is very right and very important in a capitalistic system.

 

LIU: Just quickly though, Sam, do we have that photo up of Carl Icahn – Carl Icahn on the cover of Time magazine? You and I talked about your relationship. You’ve dealt – you’ve been on opposite sides with Carl before. Master of the universe now. He’s made this comeback at this age, Sam. What do you think about this?

 

ZELL: Well I don’t think the word comeback is an accurate description. Carl is a force. Carl has been right. Carl has been right and committed to being right. If I had a hat, I would take it off to him. And I think America is dramatically better off for people like Carl.

On Obamacare:

LIU: In Washington, the Congressional Budget Office released some startling new numbers about the president’s healthcare plan that’s sure to fuel more of this partisan wrangling in Washington, including this nugget, that in two years Obamacare is going to affect workers by prompting them to put in less hours in order to keep their federally subsidized healthcare benefits, costing an equivalent of about 2 million jobs according to the CBO.

 

Well Sam Zell stays with us throughout the hour, someone who is very involved in both local and national politics. And Sam, what do you make of this number, 2 million jobs?

 

ZELL: Well, I think the issue is not 2 million jobs. I think the issue is what is the contribution to the GDP of – or lack of contribution of 2 million people not working. We both know lots of people who have kept their jobs because they couldn’t afford to lose their healthcare. Now they can access healthcare from exchanges, and all of a sudden keeping a job isn’t as relevant as it was before.

 

LIU: But Sam, is that a small price to pay as a country for giving everybody healthcare?

 

ZELL: I think the best comment of all goes to Nancy Pelosi. We have to pass this bill to find out what’s in it. This is only the latest example of hundreds and hundreds of mistakes that were made in the preparation of this bill.

 

LIU: But do you think it should be repealed?

 

ZELL: I think that the current form of Obamacare I think is deleterious to our country and needs to be radically changed. The word repeal, I don’t know what that word means. I think healthcare is an important issue. I think the question is how do you go about it. We went about this half-assed.

 

LIU: But it – well, but however, the cat’s out of the bag and we have to figure out what to do now with the consequences. One of the things though that – that – that seems to be observed now in Washington as we’re – as we’re working through healthcare is that maybe, according to someone like Walter Isaacson who we had on this program, maybe the fever is breaking in Washington Maybe this may be a year where the two sides come together. Do you feel that way at all, Sam?

 

ZELL: I don’t know what he’s been smoking because nothing I read suggests that. They made a couple of deals on a couple of simple things, but talk to me about immigration. Talk to me about healthcare. Talk to me about foreign policy. There’s so many issues where there’s just this extraordinary disparity between the parties and very little interest in compromise.

On Markets:

LIU: I want to bring back Sam Zell, who’s been standing by. Sam, you think the – you thought the markets were overpriced, right, going into 2014.

 

ZELL: I did.
 
LIU: Why’d you think that?
 
ZELL: Well I think the economic activity did not correlate to the price of the stock market. Stock market was up 25 or – I don’t remember how much it was up last year.
 
LIU: Like 30 percent.
 
ZELL: Thirty percent. I (inaudible) companies. We didn’t see any – any Kumbaya happening. So from our perspective it’s a function of too much liquidity.
 
LIU: So do you feel that this is pretty healthy then to see this – to see this kind of decline?
 
ZELL: I don’t think declines are ever healthy, but balance is what keeps us in place. And when we get out of balance like subprime loans or whatever, it’s pretty disastrous. So the market has to keep balancing back and forth as consecutive (ph) currents are relevant. And I think the market in 2014 is a lot more likely to reflect what happened in 2014 than whether or not it was up or down in January.
 
LIU: But does it make you nervous at all, Sam? I know not much makes you nervous at all, but – but seeing how volatile these markets have been over the last few weeks, does it make you more nervous that Americans are going to look at this and pull back and perhaps they may not be buying as much anymore? They may not be selling as – as many houses or buying as many houses.
 
ZELL: The market went up 30 percent last year. Did the American people buy everything in sight? No. So what’s the relevance now? I don’t think the market has a dramatic impact on buying and selling decisions unless it’s such a prolonged period like we had in ‘08 and ‘09 that it really dampens everything.

On Inequality, Government Complexity, and Persecution of the 1%:

LIU: Let me ask you about Tom Perkins because you are part of the 1 percent. You are clearly part of the 1 percent. Tom Perkins came out with this – with this letter where he defended the 1 percent and he said, look, we are being persecuted the same as the – as the Nazis were persecuting the Jews. And he was just lambasted and he came on our network and defended it. How did you feel when you read that letter and when you heard his comments?
 
ZELL: I guess my feeling is that he’s right. The 1 percent are being pummeled because it’s politically convenient to do so. The problem is that the world and this country should not talk about envy of the 1 percent. It should talk about emulating the 1 percent. The 1 percent work harder. The 1 percent are much bigger factors in all forms of our society.
 
LIU: But Sam, tell that – tell that to the person who’s on minimum wage who’s living below the poverty line that they should try to emulate the 1 percent. How are they going to get there?
 
ZELL: The stories are rampant of people who started with a candy store and took it from there. There are lots of people who have the ambition and have the motivation and have succeed. Lots of people have come from nowhere and become part of the 1 percent.
 
LIU: But do you feel because you’re rich that you’re being persecuted?
 
ZELL: The word persecution is not the right word.
 
LIU: Okay. You’re being picked on.
 
ZELL: I think that the politics of envy, the politics of class warfare are what has separated America from many parts of the rest of the world. And we have benefited dramatically from not having class warfare, from not having envy. William Jennings Bryan in 1896 was the first person to run publicly in the United States on a platform of class warfare. He lost. And wisdom at the time said this is not America, and I think it still is not America.
 
LIU: Do you think though that there needs to be some help though or that – that there needs to be policy changes or something needs to be done about the growing income – income inequality, the growing gap? Do you think there needs to be something done with that?
 
ZELL: I think that that is a function of policies and I think that overall the policies that we passed for the last 50 years, whether it be unfunded Social Security or other issues, have all contributed to this disparity. And we need to fix our government. We don’t need 17,000 new pages of federal regulations in the last five years. So I think all of those things contribute to this disparity. And the more complicated our government makes our world, the more the 1 percent can afford to hire somebody to figure it out and the other guy can’t. But if you simplify government, neither one of them require (ph). And therefore the disparity slows down.

via Zero Hedge http://ift.tt/1kemLMf Tyler Durden

With 31% of the float short, Green Mountain, despite announcing weaker than expected numbers, are spiking over 45% on news that Coca-Cola is taking a 10% stake. Albeit at a discount to the price at which GMCR closed today ($80.88 close vs $74.98 purchase price); the massive squeeze is Volkswagen-reminiscent. As the following press release explains, The Keurig Cold System is in development and thus SodaStream is getting creamed in the after-hours market (down over 10%). It seems, once again, that Whitney Tilson has managed to get himself in a short squeeze.

 

GMCR shorts slayed…

 

SodaStream crushed…

 

The Coca-Cola Company and Green Mountain Coffee Roasters, Inc. Enter into Long-Term Global Strategic Partnership

The Coca-Cola Company to Partner with Green Mountain Coffee Roasters, Inc. in  the Launch of Keurig’s New Cold Beverage Platform; Coca-Cola to Purchase 10% Minority Equity Stake in Green Mountain Coffee Roasters, Inc. for $1.25 Billion

The Coca-Cola Company (NYSE: KO) and Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR) announced today that the companies have signed a 10-year agreement to collaborate on the development and introduction of The Coca-Cola Company’s global brand portfolio for use in GMCR’s forthcoming Keurig Cold™ at-home beverage system. Under the global strategic agreement, GMCR and The Coca-Cola Company will cooperate to bring the Keurig Cold™ beverage system to consumers around the world. In an effort to align long-term interests, the companies also entered into a Common Stock Purchase Agreement whereby The Coca-Cola Company will purchase a 10% minority equity position in GMCR.

Under the terms of the equity agreement, The Coca-Cola Company will acquire 16,684,139 newly issued shares in GMCR for approximately $1.25 billion, which represents an approximate 10% ownership in GMCR (after giving effect to the issuance). The newly issued shares have been priced at $74.98, which represents the trailing 50-trading-day volume weighted average price (“VWAP”) as of market close today.

As part of the strategic collaboration, GMCR will be The Coca-Cola Company’s exclusive partner for the production and sale of The Coca-Cola Company-branded single-serve, pod-based cold beverages. The two companies also will explore other future opportunities to collaborate on the Keurig® platform.

“With The Coca-Cola Company as a global strategic partner in our multi-brand at-home Keurig Cold beverage system, we believe there is significant opportunity to premiumize and accelerate growth in the cold beverage category by empowering consumers with an innovative, convenient way to freshly prepare their favorite cold beverages at the push of a button,” said Brian P. Kelley, President and CEO of GMCR. “This global relationship combines The Coca-Cola Company’s unparalleled brand, distribution and marketing strengths with GMCR’s innovative technology and beverage system expertise.”

“Our 2020 Vision calls for decisive and timely action to continuously improve and evolve our global system to best serve our customers and consumers around the world,” said Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company. “This agreement demonstrates our creative approach to partnerships and ability to identify and stay at the forefront of consumer trends driving the industry. By pairing The Coca-Cola Company’s brand leadership and global footprint with GMCR’s innovative technology, together we will be able to capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry. Importantly, this partnership provides our consumers with a convenient way to enjoy the brands they love through in-home preparation.”

The investment is expected to close in March 2014, subject to customary closing conditions, including receipt of required regulatory approvals.

GMCR’s Keurig Cold™ single-serve beverage system is currently under development with expected availability in GMCR’s fiscal year 2015. Keurig Cold™ will use precisely formulated single-serve pods to dispense freshly-made cold beverages including carbonated drinks, enhanced waters, juice drinks, sports drinks and teas in consumers’ homes with the one-touch simplicity, quality and variety that North American consumers love about the Keurig® brand hot system platform. The cold system is expected to be a similarly open-architecture platform like the Keurig® hot system.
 

via Zero Hedge http://ift.tt/1keh15c Tyler Durden

From Guy Haselmann of ScotiaBank

Risk-Off

Markets have been unwelcoming and volatile since Janet Yellen’s swearing-in ceremony on Monday morning.  She should not take it personally as market agita is the result of a confluence of factors.  Certainly, the FOMC deserves a large portion of the blame as years of ‘pedal to the metal’ strategy demolished the ability of the Fed to know what the market’s reaction function would be once they eased off the accelerator.  Few should be surprised that there were a number of risk-seeking investors who were waiting for ‘tapering’ as the catalyst to reduce risk and to remove capital from a few EM countries.

To be fair, some of the troubles that have arisen in EM countries are isolated country-specific problems, but few should dispute that capital outflows have occurred due to ‘tapering’; thus, exacerbating their challenges.  

A quick reminder is in order.  One main goal of the extraordinary measures of Fed policies (QE and ZIRP) was to lift asset prices. In this regard, the Fed was successful as the S&P rose 160% above its 2009 low (from 676 to 1848).  The S&P is also coming off of a 32% year and posted double digit gains in 4 of the last 5 years.  Credit spreads have had an equally impressive surge.  Junk bond yields (oops, they are called ‘high-yield’) have declined more than 1500 basis points from 2009 spread levels.

Despite recent market weakness, the S&P is only 5.2% below all-time high prices; yet, investor worry seems quite substantial.  Part of the reason is due to the speed of the descent (5%+ in three weeks).  However, the magnitude (not speed) of the decline is quite small given the enormous gains in recent years; and therefore, it will not prevent the Fed from continuing its tapering path. 

The drop in the 10 year yield to 2.65% should actually provide further encouragement and cover for further QE withdrawal.  The hurdle to ‘taper the taper’ (i.e. pause) is exceptionally high.

There is only one way that the lofty asset price levels could have been maintained and that was for enough economic growth to be generated in order for the economic fundamentals to justify the prices.  For too long, investors have given the Fed the benefit of the doubt that its policies would be able to achieve this outcome; consequently, they loaded-up on risk assets.  They believed that if the economy should falter, the Fed would merely react by staying accommodative until economic activity improved.  The ‘Fed put’, clearly, resulted in wide-spread moral hazard and investor complacency.  

The shift to ‘tapering’ when the global economy appears under strain now leaves investors in a quandary.  The fact that investors have begun to question the effectiveness of further asset purchases and whether much more can be provided without causing financial instability has roiled investor mindsets. The most recent Fed Minutes have unveiled these as valid concerns.   The impact of ‘tapering’ along with the challenges exposed in China (Trust securities), Japan (Abenomics and imported energy costs), and EM countries (capital outflows and interest rate hikes) are forming a toxic mix for risk-assets.

The toxic brew, after several years of double digit portfolio gains, means that prudent investors and portfolio managers are well-advised to reduce risk (and stop justifying out-sized risk exposures by ‘fear of missing the upside’).

Risk positions have accumulated over several years, therefore three weeks of volatility (and the resulting minor correction) witnessed recently are probably only a small fraction (and indication) of what is yet to come. 

Poor market liquidity will likely intensify capital flows and force transactions at sub-optimal prices. The most liquid instruments will start to command higher liquidity premiums.  Should global challenges deteriorate further or contagion advance, a meaningful reduction in growth and inflationary expectations are likely to arise.  This potential scenario may (be necessary to) propel Treasury prices higher and through the 2.5% yield on the 10-year note.

“Every closed eye is not sleeping and every open eye is not seeing”.

      – Bill Cosby

via Zero Hedge http://ift.tt/1keh155 Tyler Durden

From Guy Haselmann of ScotiaBank

Risk-Off

Markets have been unwelcoming and volatile since Janet Yellen’s swearing-in ceremony on Monday morning.  She should not take it personally as market agita is the result of a confluence of factors.  Certainly, the FOMC deserves a large portion of the blame as years of ‘pedal to the metal’ strategy demolished the ability of the Fed to know what the market’s reaction function would be once they eased off the accelerator.  Few should be surprised that there were a number of risk-seeking investors who were waiting for ‘tapering’ as the catalyst to reduce risk and to remove capital from a few EM countries.

To be fair, some of the troubles that have arisen in EM countries are isolated country-specific problems, but few should dispute that capital outflows have occurred due to ‘tapering’; thus, exacerbating their challenges.  

A quick reminder is in order.  One main goal of the extraordinary measures of Fed policies (QE and ZIRP) was to lift asset prices. In this regard, the Fed was successful as the S&P rose 160% above its 2009 low (from 676 to 1848).  The S&P is also coming off of a 32% year and posted double digit gains in 4 of the last 5 years.  Credit spreads have had an equally impressive surge.  Junk bond yields (oops, they are called ‘high-yield’) have declined more than 1500 basis points from 2009 spread levels.

Despite recent market weakness, the S&P is only 5.2% below all-time high prices; yet, investor worry seems quite substantial.  Part of the reason is due to the speed of the descent (5%+ in three weeks).  However, the magnitude (not speed) of the decline is quite small given the enormous gains in recent years; and therefore, it will not prevent the Fed from continuing its tapering path. 

The drop in the 10 year yield to 2.65% should actually provide further encouragement and cover for further QE withdrawal.  The hurdle to ‘taper the taper’ (i.e. pause) is exceptionally high.

There is only one way that the lofty asset price levels could have been maintained and that was for enough economic growth to be generated in order for the economic fundamentals to justify the prices.  For too long, investors have given the Fed the benefit of the doubt that its policies would be able to achieve this outcome; consequently, they loaded-up on risk assets.  They believed that if the economy should falter, the Fed would merely react by staying accommodative until economic activity improved.  The ‘Fed put’, clearly, resulted in wide-spread moral hazard and investor complacency.  

The shift to ‘tapering’ when the global economy appears under strain now leaves investors in a quandary.  The fact that investors have begun to question the effectiveness of further asset purchases and whether much more can be provided without causing financial instability has roiled investor mindsets. The most recent Fed Minutes have unveiled these as valid concerns.   The impact of ‘tapering’ along with the challenges exposed in China (Trust securities), Japan (Abenomics and imported energy costs), and EM countries (capital outflows and interest rate hikes) are forming a toxic mix for risk-assets.

The toxic brew, after several years of double digit portfolio gains, means that prudent investors and portfolio managers are well-advised to reduce risk (and stop justifying out-sized risk exposures by ‘fear of missing the upside’).

Risk positions have accumulated over several years, therefore three weeks of volatility (and the resulting minor correction) witnessed recently are probably only a small fraction (and indication) of what is yet to come. 

Poor market liquidity will likely intensify capital flows and force transactions at sub-optimal prices. The most liquid instruments will start to command higher liquidity premiums.  Should global challenges deteriorate further or contagion advance, a meaningful reduction in growth and inflationary expectations are likely to arise.  This potential scenario may (be necessary to) propel Treasury prices higher and through the 2.5% yield on the 10-year note.

“Every closed eye is not sleeping and every open eye is not seeing”.

      – Bill Cosby

via Zero Hedge http://ift.tt/1keh155 Tyler Durden