Last post on the Bugle

December 9 - 14, 2013

In North America...

Markets: The S&P 500 suffered its worst week since August, finishing 1.7 per cent lower than Monday's open. Whether the pull back results from investor wariness regarding the timeline around Federal Reserve stimulus or from investor's profit taking, is unknown. Next week is the last full trading week of 2013, which offers a chance for markets to make a comeback. After dropping to a near eight week low mid week, the TSX was able to end the week relatively unchanged. 

Companies: Two large IPOs last week. The Hilton IPO was a big win for PE firm Blackstone, while Moncler IPOd to much acclaim and revitalised the conversation around luxury good companies. 

Blackstone had taken Hilton private in 2007. It then invested $ 5.5 bn straightaway, and put in another $20.5 bn in borrowed debt. In 2010, Blackstone wrote off some of the debt, and restructured the deal (the equivalent of refinancing a mortgage when rates are low). While Hilton listed for 20bn (what looks like a 6bn loss), the reality is that shares were up 7.5 percent to $21.50, giving the company a market capitalization of $21.2 billion. Adding the remaining $12 billion of debt gives it an enterprise value of about $33 billion. In other words, the overall value of the business actually increased by about 27 percent. With 76 percent of the equity, Blackstone’s stake in Hilton is worth $16.1 billion. That is a profit, on paper at least, of more than $9.5 billion. A bit of nifty work, and extremely good timing, there. 

Moncler shares closed up 47% on the first day of trading, jumping from €10.20 to €14.97 per share (company value of nearly US $939 mn).  It is the latest luxury retailer to go public, and bodes well for European consumer confidence. 

Also, some executive changes. General Motors appointed Mary Barra as chief executive, its fifth in five years. Ms Barra, currently head of product development, worked her way up the company from a job in engineering that she started at 18. Lulelemon founder Chip Wilson stepped down from the company. 

Otherwise: Canada post is going to phase out door deliveries, forcing individuals to pick up mail through communal pick up points.

The Volcker rule, a laborious 1,000 page document on financial regulation, was finally agreed upon after three years. I see general counsel at banks increasing... As is so often the case

with elaborate regulation, the outcome will probably be the opposite of what the bureaucrats intended. Banks will cease conducting certain transactions not just on their own account, but also on behalf of clients. The result will be less liquid markets, higher transaction costs, a weaker financial system and, as usual, richer lawyers.

In Europe...

EADS is restructuring towards its commercial airline business, saying it will shed 5,800 jobs over the next three years in its defence and space divisions, partly because of reduced defence spending by European governments

In the coming week... 

The Fed meets next week to discuss continued monetary stimulus. Confusion of the timing of a taper continues to cause investor confusion regarding profit taking and market trajectory. US economic news has revealed strong numbers recently, however Bernanke's exit from the Central Bank in January makes many believe there will be no meaningful movement until Yellen becomes chair.