Weekly Good News Wrap - July 5 - 12

• TARP Warrants: A Boon for Taxpayers?

  Posted: Sat, 11 Jul 2009 05:09:00 +0000

  On Friday it was announced that State Street Corp. became the first of 10 large banks to repurchase warrants held by the US Treasury. The warrants were put in place to assure that taxpayers are rewarded for their collective TARP loan to banks as the finance sector recovers.
  
  The transaction occured on Wednesday and cost State Street $60 million dollars. The proceeds flowed directly into US government coffers. The transaction sets the warrant bar for the nine other top banks who have collectively repayed $66B in rescue aid principal, but have yet to retire their warrant obligations by negotiating deals with the Treasury.
  
  The State Street transaction equates to $30M per $1B borrowed. That could well mean that the other nine banks are looking at a collective $2B payback on their $66B.
  
  The warrant deals are politically sensitive, with congress calling on the Treasury to drive a hard bargain on behalf of taxpayers. Banks have complained that valuing the warrants too highly could impede the goal of restoring health to the financial system. (I'll use that line on my bank loan officer the next time and see how well it works)
  
  For taxpayers (many of which viewed the bailout monies as a gift rather than a loan to the banks) are now revelling in the reality that they've just made a quick 3% gain in less than a year.
  
  A quite healthy return in the current investment climate.

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• Initial Claims at Lowest Rate Since January - Auto Plants Restart

  Posted: Fri, 10 Jul 2009 05:28:00 +0000

  The rate of new claims for jobless benefits fell to the lowest level since January, and a close look at the pattern of layoffs in the automotive industry provided additional good news for auto workers.
  
  The government said that initial claims fell by 52,000 -- a drop significantly more than any economists had expected. In addition, the new claims data appears to have been significantly effected by positive circumstances in the auto industry.
  
  A Labor Department official said there had been far fewer automotive and other manufacturing layoffs last week than anticipated. Historically in July many auto plants are commonly idled. This year however many of those same plants sat idle earlier in the year as automakers entered bankruptcy and restructuring plans. Those plants are just now coming back on-line.
  
  For instance, after emerging from bankruptcy protection and finalizing a deal with the Fiat Group, Chrysler resumed production of vehicles at seven assembly plants in the US, Canada, and Mexico the week of June 29. And GM attorneys are expected to lead the new General Motors out of bankruptcy protection on Friday with associated factory production restarts to follow shortly.
  
  As the 2009 recovery gets underway, these auto plant restarts will no doubt lead to renewed optimism for US auto workers and further boost rebounding factory production.

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• More Silver Linings In Alcoa Aluminum

  Posted: Thu, 09 Jul 2009 02:56:00 +0000

  You may recall that the first two weeks of Q1 2009's earnings season had the perma-bears calling for earnings disasters in the Q1 results. Much of the media piled on proclaiming that a "sucker rally" was in progress. We are still waiting on that proverbial next leg down...
  
  But then the earnings season kicked off with Alcoa(AA) painting a quite rosy picture for 2009.
  
  As we enter the Q2 earnings season, the jitters have continued in recent days. But again Alcoa kicks off the season with news that -- for them at least -- the results are better than expected. The aluminum leader said it lost 26 cents a share in the quarter, far better than the 38 cent loss consensus estimates. In after hours trading Wednesday evening Alcoa was up four percent on the good news.
  
  Alcoa (AA) continues to claim that it's distributors are showing increased buying interest. Alcoa CEO Klaus Kleinfeld reported last month that distribution channels are now speculating that they will be unable to adequately supply a revived global demand.
  
  Distributors "know if the green shoots turn over to become demand, they will not be able to supply." If that happens Kleinfeld said, "our distribution chain will generate this giant sucking sound of demand."
  
  It would not be the first time we've seen aluminum's silver lining.

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• Another $1B for Commercial Real Estate

  Posted: Tue, 07 Jul 2009 23:46:00 +0000

  According to reports in the online version of the Wall Street Journal, one of the largest real-estate investment trusts in the US is seeking to raise $1 billion to invest in commercial properties.
  
  Vornado Realty Trust, one of the biggest real-estate investment trusts in the U.S., says, it would seek "high quality assets at distressed prices."
  
  Vornado is already a major commercial landlord in East Coast markets, most notably New York and Washington DC.
  
  The reports come less than a week after Blackstone Group (BX) said it had finished raising $4.3 billion, for its Blackstone Real Estate Partners Europe III fund. (“BREP Europe III”)

  That placement will aim to exploit the real estate recovery by "taking advantage of the inevitablerecapitalization of the property sector" according to Blackstone.

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