Five Things You Need to Know: Dominoes; Brokers On the Level?; Lehman On Deck: What to Watch; Putting Martha Stewart Wine to the Test; Minyanville Presents: Failed Celebrity/Alcohol Product Pairings
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
PHH Corp. (PHH), a mortgage lender and vehicle-fleet manager, said its $1.8 billion sale to General Electric (GE) and Blackstone Group (BX) may fall apart after the banks financing part of the transaction decided to pull some commitments, Bloomberg reported.
- The company told shareholders that on Friday it received a copy of a letter sent to GE Capital by Pearl Acquisition (the affiliate of Blackstone to which GECC intends to sell PHH immediately upon closing of the planned merger) advising that both JP Morgan (JPM) and Lehman Brothers (LEH) "revised interpretations" as to the availability of debt financing.
- The net result is that Blackstone may lose access to $750 million.
- While Blackstone is reportedly looking for new sources of financing, "it is not optimistic at this time that its efforts will be successful,'' PHH said, according to Bloomberg.
- And, as is the case with dominoes, when one falls, many others are at risk.
- "We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed,'' GE spokesman Stephen White told Bloomberg.
- "But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger.''
2. Brokers On the Level?
Speaking of JP Morgan and Lehman Brothers, while major media outlets continue their obsessive focus on the Federal Reserve Open Market Committee meeting tomorrow, Wall Street will instead be focused on the first of a parade of earnings reports from Wall Street banks.
- First up is the Lehman Brothers (LEH) report tomorrow morning at 8 a.m.
- Lehman has heavy exposure to mortgage-backed securities - the firm was second only to Bear Stearns in underwriting mortgage-backed securities last year, capturing 10% of the market compared to Bear's 11% - but due to the wide berth and discretion afforded by new accounting rules, it may be difficult to initially sort out how much of a hit, if any, Lehman will actually take.
- The problem, of course, is mark-to-market vs. mark-to-model, an issue that has been discussed frequently in Minyanville (see here and here).
- New accounting rules allow for trading assets to be divided into three levels.
- Level One assets are the most liquid assets and therefore the easiest to price.
- They make up less than a quarter of most firms' assets.
- Level Two assets make up the majority of firms' assets but rely heavily on the firms' assumptions about things such as interest rates because they are far less liquid than Level One assets; according to regulatory filings by the five largest U.S. brokers and largest money center banks, there are more than $4 trillion in Level Two assets on their balance sheets.
- Finally, Level Three assets are the least liquid of the firms' trading assets and therefore are valued using what are called "unobservable inputs."
- Level Three assets include real estate, mortgage-backed securities, private equity investments and possibly even "undertakings of great advantage, but nobody to know what they are" (cf. South Sea Bubble).
- Lehman last quarter had about 8% in Level Three assets on their books.
3. Lehman On Deck: What to Watch
There are a few things to watch and listen for in Lehman's earnings report and conference call tomorrow:
- According to the Financial Times, the major banks' practice has been to reveal the split among trading asset levels only in regulatory filings... and long after their earnings release.
- If Lehman sticks to that practice tomorrow, there may be anxiety even if the firm reports "good" numbers.
- If they deviate from that pattern and opt to provide details tomorrow, it will set a precedent the other firms will be forced to follow, and important to see how much, if any, their proportion of Level Three assets has increased.
- The reality, however, is that until all the firms lay all their cards on the table, this week's reports are more likely to generate select sighs of relief than to reveal a smoking gun.
- Like the Fed (Look for Five Things You Need to Know: Special Obsessive FOMC
Edition tomorrow), this is step one in a series of attempts to buy time, and breathing room, in the hopes that liquidity and pricing issues improve.
- The end game is a long way off.
4. Putting Martha Stewart Wine to the Test
According to the Associated Press, Martha Stewart, Queen of all things house and home, now plans to extend her domestic reach into the adult beverage industry by teaming up with E&J Gallo Winery to develop a brand of wines under the label "Martha Stewart Vintage."
- Martha Stewart Living Omnimedia (MSO) said the initial launch of 15,000 cases of Martha Stewart Vintage will include three wines: 2006 Sonoma County Chardonnay, 2005 Sonoma County Cabernet Sauvignon and 2006 Sonoma County Merlot.
- The wines will initially be offered in six U.S. cities beginning this January: Atlanta, Boston, Charlotte, N.C., Denver, Phoenix, and Portland, Ore.
- The AP said each bottle is expected to sell for about $15.
- At Minyanville last Friday night we were fortunate enough to obtain sample bottles of the Martha Stewart Chardonnay, Cabernet Sauvignon and Merlot, so we put them to our rigorous, patented tasting test, including potential health benefits.
- As you may have guessed, the results are strangely unsurprising.
|Wine||Tasting Notes||Health Benefits|
Martha Stewart 2006 Sonoma County Chardonnay (California)
Light yellow-green; complex, attractive butter, tropical, pineapple, fig, peach, dill and mineral aromas. Pleasing, complex style; very nice wine, although some panelists thought a little too oaky. ($15)
Improves overall cardiovascular health; prevents kidney stones; cuts stroke risk; high in antioxidants.
| MD 20/20, November 21, 2006, Detroit.
||Possibly distilled from Lucky Charms marshmallow mash; sugary mouthfeel followed by intense burning sensation in nostrils; suffocating finish. May contain agents to numb sensitive teeth and gums.||Dizziness; some nausea (improves with vigorous belching).|
Martha Stewart 2005 Sonoma County Cabernet Sauvignon (California)
|Faint bouquet, attractive fruit flavors, not too ripe, compensates for lingering burning sensation on tongue from prior MD 20/20 tasting. Not too tart, but with some kind of spicy acidity that may or may not be related to the MD 20/20. Hard to tell. But giving it the benefit of the doubt.||
Improves overall cardiovascular health; prevents kidney stones; cuts stroke risk; high in antioxidants.
| Night Train Express (Vintage Unknown)
||Bouquet forced us to check bottle to make sure it wasn't Liquid Plumber. Slight nuttiness on the palate made us all agree we wanted to fight someone very soon. One panelist smashed his tasting glass against the wall and pressed his hands against his head while rocking back and forth unsteadily.||Why does that dude keep looking over here? Seriously. "Hey pal, hope you have health benefits... hahaha."|
|Martha Stewart 2005 Sonoma County Merlot (California)
||Tastes like Night Train. Seriously. Or the finish on the Night Train is so overwhelming we can't tell anymore. "Hey baby, do you know how to use a whip? Seriously, We could use some chicken wings over here, sweetheart."||Hopefully, severe fever. "Is it hot in here, or is it just you?"|
"YES! THAT IS WHAT
"Hey, tell Col. Sanders back there we're still waiting on those chicken wings."
|Just bought two packs of cigarettes and a can of Skoal.|
|Olde English 800
||See, most people don't know this, but the English inverted... inventious... invented malliquor... malt lucker. They did it. I don't know what means that the 800. Price? Did that price on the 800? Price? Spended! How very spended on mall lixir.|
5. Minyanville Presents: Failed Celebrity/Alcohol Product Pairings
Celebrity/alcohol product pairings are certainly nothing new, but simply stamping one's name on an alcohol product is no guarantee a celebrity can elbow his or her way up to the bar.
- While some celebrities have managed to successfully enter the social lubricant market - see for example Donald Trump's Trump Vodka which Minyanville's Hoofy and Boo touched on recently, or even Willie Nelson's Whiskey River bourbon - Minyanville is here to remind you of a few noteworthy failures in the celebrity/alcohol pairings market.
- If fame is a fleeting thing, spirits can cause it to evaporate even faster.
Failed Celebrity/Alcohol Product Pairings
1. The Dean "Martini" Executive Travel Pack
It seemed like a perfect match: the velvety vocals of Dean Martin combined with a special martini-making travel pack for the busy executive on the go. Ultimately, however, public outcry over drunken executives "on the go" proved to be this pairing's downfall.
Waylon Jennings Smokable Whiskey Sticks
A simple concept: meld the image of Country & Western guitarist and reputed outlaw Waylon Jennings with whiskey and smoke, get the Waylon Jennings Smokable Whiskey Sticks. Unfortunately, the product's creators underestimated the appeal of smoking and drinking, as opposed to simply smoking and smoking. Test marketers almost uniformly reported feeling "a little parched; drunk too, but also parched."
Charles Bukowski Bourbon Flakes
Barfly poet and boozer extraordinaire Charles Bukowski reported being "largely ambivalent and slightly tipsy" when agreeing to allow the use of his image on a breakfast cereal targeting "upscale drinkers on the way down." Alas, the marketing firm responsible for the product failed to account for the violent consumer reaction to "pre-soggy" cereal.
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