Unstructured Finance

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.

But he told Reuters that the market is primed for short-sellers like him and as a result has gone out to raise capital for his mission: “Markets mean-revert and performance mean-reverts and even alpha mean-reverts if at least my last 30 years are any indication. And the time to be doing this is when you feel like the village idiot and not an evil genius, to paraphrase my critics.”

Chanos’ bearish views are so well respected that the New York Federal Reserve has even included him as one of the money managers on its investment advisory counsel. By his own admission, Chanos said he tends to be the one most skeptical on the markets.

Hedge fund manager Hempton on Herbalife

John Hempton is bullish on Herbalife but bearish on coal

By Jennifer Ablan and Matthew Goldstein

Hedge fund manager and frequent blogger John Hempton is a little bit like the Jim Chanos of Australia.

Over the years, he’s been a fairly prescient short seller. For instance he was an early skeptic on computer giant Hewlett Packard and travel services company Universal Travel Group, which recently agreed to pay nearly $1 billion to settle a U.S. Securities and Exchange Commission lawsuit alleging that the company defrauded investors by failing to disclose the transfer of $41 million from stock offerings to unknown parties in China.

But unlike Chanos whose Kynikos Associates almost exclusively goes short—makes a bet a company’s share price will plummet because of fraud, unsustainable revenue growth or simply an unrealistic valuation—Hempton’s Bronte Capital also makes a fair bit of money on the long side as well.

Deals wrap: Aussie coal is hot

A coal excavator loading coal at one of Macarthur Coal's mines  in Queensland is seen in this undated photograph obtained April 9, 2010. REUTERS/Macarthur Coal/HandoutAround $7 billion of Australia’s coal assets are in the crosshairs of predators from Seoul to Shanghai, as Asia jostles for supplies to feed its burgeoning needs, pushing up bid valuations for Australian coal miners. *View article *View factbox

Barnes & Noble’s predicament is sounding like Blockbuster’s — meaning, unfortunately, the fading video rental chain not a successful movie. The U.S. bookseller’s cash flow is sinking and technological shifts look set to worsen that. What exactly the bookseller can do is unclear. *View column

Bernard Madoff had the big numbers attached to his crime but Kenneth Starr’s alleged Ponzi scheme has celebrities. Vanity Fair takes a look into Starr’s world. *View Vanity Fair article

DealZone Daily

United Airlines has restarted merger talks with Continental Airlines as it eyes the top spot as the world’s largest air carrier. The two laid much of the ground work for a deal in 2008 but decided to puruse an alliance instead. A deal could leave US Air jilted despite four months of negotiations with United but, in a further twist to the aerial saga, United has also raised the topic of a deeper three-way cooperation between the airlines.

Top Macarthur Coal shareholder CITIC Resources said it has not yet decided whether to support a A$16 a share offer from Peabody Energy valuing the Australian miner at $3.8 billion. The 22.4 percent stakeholder said it needs more information to make a final decision on the Peabody bid.

Prudential’s Asia CEO said the British insurer is under no pressure from its shareholders to cut the $35.5 billion purchase price for AIG’s Asian life insurance unit.

DealZone Daily

Peabody Energy has raised its offer for Macarthur Coal by 14 percent to $3.8 billion — trumping a sweetened offer from local rival New Hope Corp.  In order for the deal to go through, Macarthur must ditch a vote on a proposed takeover of Gloucester Coal, a smaller local rival. The vote had been delayed to April 19.

R0bert Hingley — outgoing director general of the UK’s Takeover Panel — is joining Lazard’s financial advisory group, Lazard says. All the more interesting as senior Lazard banker Peter Kiernan is set to become the Panel’s new head. But his arrival has been delayed, ever since British lawmakers started probing Kraft’s takeover of British chocolatier Cadbury — a deal Kiernan was one of the main architects for.

Royal Bank of Scotland is whittling down the list of suitors for its 3 billion pound payment processing firm WorldPay, sources tell us. UK payments firm Voice Commerce and other suitors have dropped out of the running.

Environmental groups call “clean” coal a fairy tale

USA-COAL/MONTANAWhat do Bigfoot, a mermaid, an alien from outer space, and clean coal all have in common?
    None of them exist, according to several environmental groups.
    Organizations such as the League of Conservation Voters, Natural Resources Defense Council and the National Wildlife Federation have launched a multi-million dollar media onslaught aimed at knocking down claims that power can be generated from coal now in an environmentally safe manner.                                                                                                                                                      The so called “reality” campaign features a television commercial with a man touting “clean coal technology” in a barren field and print ads with fictional creatures holding lumps of coal. The message of the ads is “In reality, there’s no such thing as clean coal.”
    How to handle America’s abundant coal supply is likely to remain a contentious issue as U.S. President-elect Barack Obama’s incoming administration tackles climate change and reducing greenhouse gas emissions.
    Coal-fired power plants generate about half of U.S. electricity supplies, and account for about 40 percent of U.S. greenhouse gas emissions — the biggest single industrial source.
    Obama has expressed support for the development of technology that would allow coal-burning power plants to trap and store carbon dioxide rather than releasing it into the atmosphere. Such technology is commercially untested and currently economically nonviable.
    Coal industry trade groups, such as the American Coalition for Clean Coal Electricity, say that they are committed to carbon reduction strategies and coal power is necessary to provide Americans with affordable electricity.
    Until the carbon capture and storage technology is developed, however, environmentalists behind the Reality Coalition say on their website “coal will remain a major contributor to the climate crisis.”

–Ayesha Rascoe

Turning the page on Borders

Barnes & NobleBarnes & Noble Inc reportedly has read the market and decided to turn the page on an acquisition of rival Borders Group Inc. The largest U.S. specialty bookseller, which had been looking into a bid for Borders, is likely to take a pass because of tight lending markets that would make it difficult to arrange bank financing, the Wall Street Journal said, citing people familiar with the situation. Borders, which put itself up for sale in March, has struggled with liquidity issues and has been closing underperforming stores and taking other steps to turn around its business.

Reuters’ DealTalk columnists report that overseas metal and mining companies may have U.S. coal assets in their sights. Indian and Russian firms in particular are looking to snap up assets in order to gain a foothold in the U.S. metallurgical coal market, DealTalk says. Metallurgical coal, also called met or coking coal, is used to make coke, the material used to fuel blast furnaces at steel mills. Two assets that could be on the market are privately owned U.S. coal producers United Coal and Bluestone, one source familiar with the matter said.

Shares in Impala Platinum (Implats), the world’s No. 2 producer of the precious metal, raced 9 percent higher on Thursday partly boosted by market talk that BHP Billiton could make a $26 billion bid for the South African company. South African website www.Miningmx.com said BHP may soon have no choice but to make an offer of at least 200 billion rand ($25.65 billion) for Implats. The article said BHP, the world’s largest producer of metals and minerals, had the world’s best and most diversified portfolio of assets in the resources sector — with the exception of platinum, to which it has no exposure. “At the moment it is pure speculation, but yes, for sure the speculation is affecting the (share) price,” Roy Lamb, a trader at Investec Securities in Johannesburg said. BHP declined to comment.

  •