Scratch This

The 7-Year Itch of reliquifying $550 billion in levered loans from the 2003-2008 PE shopping spree is in full force. It needs to be medicated.

 

One of our key themes in 4Q09 was the ‘7-Year Itch’, the crux of which is that the spend-a-thon that occurred in the private equity world from 2003-2008 at peak valuations and peak margins needs to reliquify to save pro-cyclical buyers from their own bad bets. The tally is a frightening $550billion in levered loans that need to come to market.

 

Scratch This - 7 YEAR ITCH

 

With the Piggy Banker Spread (between 10s to 2s) near all-time highs, the average CEO just having seen their net worth pop by over 50% from a scary bottom, and the Mensa Society running our investment banks showing their propensity to dole out the big bonuses for performance that is grossly misaligned with what is needed for a healthy US financial system, it should not come as a shocker that deal activity is ripping.

 

Can you please quantify ‘ripping’ McGough?  Ok.

  1. We saw 90 equity offerings worth $40.2 billion come to market since 1/1/08.  Ironically, one transaction – Visa – accounted for 45% of this total. Excluding this, we’re looking at $22.3bn gross over 2 years.  A full 62% of that occurred since September, when ‘the most hated rally in history’ was a stone cold reality and the spread between 10s and 2s hitting all-time highs was acknowledged as the gift that it is.
  2. Aside from IPOs, we’re seeing stepped-up M&A activity. Heck, if you’re a banker, you get paid more on a merger/acquisition than you do an IPO – so why not?  Just this week we saw Walgreens buy Duane Reade. Not a lot of detail was given, but based on facts given, our analysis is getting us to a (levered) loss of about 45% for Oak Hill on the deal.
  3. Back in IPO land, now there’s talk of Toys R Us coming back to market. Dollar General is one of the biggest pigs thus far to don enough lipstick to switch hands. Toys R Us is bigger. We think Sports Authority will follow. We’re gonna need a lot more lipstick.

Scratch This - IPO COUNT vs SPREAD

 

But it’s not all positive, folks. In fact, over the past month, we’ve seen 15 IPOs and 16 debt offerings pulled. One of the more notable retractions is this morning’s announcement from Blackstone that Travelport is not ready for Prime Time (actually, they’d argue that Prime Time isn’t ready for them).

 

What is almost ready for prime time is a BX short, which has a broken TREND line on Keith’s models of $13.97. Stay tuned on that one.

 

Scratch This - BX

 

Brian McGough

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more