China and Blackstone - leverage?

[Spartacus]

China is not going to sell the UST securities, are they?

I bet not.

The UST bills will be put up as collateral with Goldman and JPM for loans with which to buy the Blackstone shares.

leveraged CB purchase of extremely leveraged PE firm that uses extreme leverage to buy out other firms.

WOOT!!! WOOT!!! WOOT!!! WOOT!!! WOOT!!! WOOT!!!
IT'S THE APOCALYPSE!!!! RUN FOR YOUR LIVES!!!!!!!!!

[Jim Nickerson]

Re: China and Blackstone - leverage?

China is not going to sell the UST securities, are they?

I bet not.

The UST bills will be put up as collateral with Goldman and JPM for loans with which to buy the Blackstone shares.

leveraged CB purchase of extremely leveraged PE firm that uses extreme leverage to buy out other firms.

WOOT!!! WOOT!!! WOOT!!! WOOT!!! WOOT!!! WOOT!!!
IT'S THE APOCALYPSE!!!! RUN FOR YOUR LIVES!!!!!!!!!

If one has, as I read, 1.2 Trillion bonars, and were going to invest 0.25% or $3 billion, that is 1/4 of 1%, why on earth would one wish to borrow the $3B?

That is the same as my having a $1M and deciding to invest $2,500 and deciding I would be better off to borrow $2,500 in order to invest.

I think such on my part or China's would be nuts.

Seriously, what does WOOT!!! mean or imply?

[Spartacus]

Re: China and Blackstone - leverage?

First the serious answer - selling the USTs would tank their price, wouldn't it? Not for that $3B but for the full planned amount of this new hedge fund. Force the US to raise interest rates and all that other good stuff.

The whole point is to use the USTs, not get rid of them.

And the second answer,

This entire thing is an exercise to ease the Chinese bureaucracy into Hedge Fund / Private Equity territory.

Coming into it with no leverage would be .... sacrilege. A Hedge fund with NO LEVERAGE? UNTHINKABLE !!! (say with a British accent and imagine a monocled sourpuss).

The WOOT!!! is a shout of joy, but also an alarm bell / claxon. It means I'm celebrating but fearfully.

The older alarms don't necessarily convey a shout of joy, as the ones that Some prefer

AROOOOOOGAAAAAAAA!!!!
or

CLANG !!!! CLANG !!!! CLANG !!!! CLANG !!!!

If one has, as I read, 1.2 Trillion bonars, and were going to invest 0.25% or $3 billion, that is 1/4 of 1%, why on earth would one wish to borrow the $3B?

That is the same as my having a $1M and deciding to invest $2,500 and deciding I would be better off to borrow $2,500 in order to invest.

I think such on my part or China's would be nuts.

Seriously, what does WOOT!!! mean or imply?

[Jim Nickerson]

Re: China and Blackstone - leverage?

First the serious answer - selling the USTs would tank their price, wouldn't it? Not for that $3B but for the full planned amount of this new hedge fund. Force the US to raise interest rates and all that other good stuff.

The whole point is to use the USTs, not get rid of them.

And the second answer,

This entire thing is an exercise to ease the Chinese bureaucracy into Hedge Fund / Private Equity territory.

Coming into it with no leverage would be .... sacrilege. A Hedge fund with NO LEVERAGE? UNTHINKABLE !!! (say with a British accent and imagine a monocled sourpuss).

The WOOT!!! is a shout of joy, but also an alarm bell / claxon. It means I'm celebrating but fearfully.

The older alarms don't necessarily convey a shout of joy, as the ones that Some prefer

AROOOOOOGAAAAAAAA!!!!
or

CLANG !!!! CLANG !!!! CLANG !!!! CLANG !!!!

Thanks for explaining WOOT!!!, Spartacus.

If one is worried about the value of the dollar and wishes rather to put dollars into hard assets, it seems in my micro-economic mind that one would wish not to hold dollars or US Treasuries. Isn't the purpose of borrowing against a potentially depreciating asset counterproductive? To me it is, but that is just me.

Barron's has a piece today on these Sovereign Wealth Funds http://online.barrons.com/article/SB..._magazine_main, and that writer, Andrew Bary seems to support your contention, "The Chinese and other big holders of Treasuries aren't apt to sell them, but new demand could decline. Stocks, real estate and commodities, on the other hand, all could benefit." However, he also suggests that Treasuries "could be hurt if countries plow new money into sovereign wealth funds rather than keeping it in official reserves, which are invested in government bonds."

This all looks to me as though holding onto US Treasuries is a losing proposition.

[Spartacus]

Re: China and Blackstone - leverage?

hmmm..... interesting.

If they write the contracts such that they can deliver the UST or cash for settlement, they win either way.

If the USTs gain value, pay the loans in cash.

If the USTs drop, deliver the USTs.

The counterparty would see the risk, of course, and get some swaps to cover themselves.

Isn't the purpose of borrowing against a potentially depreciating asset counterproductive? To me it is, but that is just me.
......
.....
This all looks to me as though holding onto US Treasuries is a losing proposition.

You and I cannot do the types of deals the Chinese Government can.

[Jim Nickerson]

Re: China and Blackstone - leverage?

To further this a bit, Peter Schiff http://www.safehaven.com/article-7628.htm writes

The persistent weakness in bonds and corresponding recent rise in interest rates further supports my point. Investors are getting out of cash and bonds (which merely represent future payments of cash) in favor of tangible assets such as equities. The fact that rising interest rates are ultimately negative for stocks is conveniently ignored, as the race to get out of cash trumps all else. In the U.S., the yield on the 10-year Treasury has backed up 25 basis points in the last three weeks. If yields rise above 5% on this move, which looks very likely, momentum should take yields to 5.25% before the end of June. There will be some resistance there, but look for 10-year yields to breach 5.5% before the end of the summer. Once that level is taken out, I expect a move above 6% to happen very quickly, perhaps even before the year ends. Is it just me, or does this seem eerily familiar to the summer of 1987?

So, new foreign reserves go into the US stock market, thus driving up equity prices, but because of failing support to the bond market, interest rates continue to rise. Rising rates are bad for the stock market, or so it seems I have learned.

[bill]

Re: China and Blackstone - leverage?

So, new foreign reserves go into the US stock market, thus driving up equity prices,

http://ftalphaville.ft.com/blog/2007...vate%e2%80%99/

"GS TRuE is the first of several new, private exchanges being considered by Wall Street firms and others, says the Journal. Nasdaq is also planning its own new market for smaller, unregistered securities.
These markets will generally be closed to individual investors. Goldman’s market, for example, is open only to large institutional investors with assets of more than $100m. That is because the stocks traded on GS TRuE aren’t registered with the SEC and issuers aren’t subject to SEC regulations designed to protect individual investors."

The equities of the private or unregistered would benefit as described above. How would the public US stock market equities benefit?

[bill]

Re: China and Blackstone - leverage?

Private, Private, Private It gets better in the article below they call it “secretive society of funds”.





http://www.economist.com/finance/dis...ory_id=9230598

The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps.

By choosing a private-equity firm, China will also be able to invest directly in a partner that, notwithstanding its forthcoming share offering, can keep many of its operations out of the public eye. But this is where the ironies of the deal are most apparent. “Crony capitalism? It is a marriage made in heaven—a partnership that does not want investors to ask questions with a country whose firms do not want investors to ask questions. I worry about the serious conflicts of interest this generates. More generally, government entities shouldn't be in the business of investing in private firms,” opines Raghuram Rajan, of the University of Chicago's Graduate School of Business.

It is quite possible that by purchasing a non-voting interest in Blackstone, China will be able to bypass the restrictions that might prevent it doing Unocal-style deals in Europe and America.

The point is if you cannot purchase the asset in a open public fashion, take it private and get rid of the public headache. Hide it as much as possible to achieve the investment objective without a public regulated environment.
The assets foreigners want in the US are ones like the Unocal, Dubai port deal, and power plants, infrastructure,ect. ect.

I say the 3 billion in the Chinese Blackstone deal was applied as option money used by the Chinese as a deposit for the purchase of more than just 3 billion worth of assets. Using the 3 billion option money to leverage and control assets for a future closing, assets already controlled, leveraged and owned by Blackstone.

[bill]

Re: China and Blackstone - leverage?

http://www.bloomberg.com/apps/news?p...d=aPh8aKUVEjFI

How big are these sovereign wealth funds likely to get? Stephen Jen, London-based global head of currency research at Morgan Stanley, estimates $12 trillion by 2015. That's nearly the current size of the U.S. economy, and it could create interesting problems for the world economy.
``I believe that SWFs will become absolutely massive in size in the not-so-distant future, and will have powerful implications for the financial markets,'' Jen says. ``I am increasingly concerned about financial globalization as a reaction to the emergence of these funds.''
Risk Tolerance
Over time, powerful government investment companies could increase demand for stocks and decrease interest in bonds. The hunger for higher returns might increase the tolerance for risk globally. Jen estimates global bond yields will, on average, rise 30 to 40 basis points over the next 10 years, while price/earnings ratios on stocks rise 5 percent to 10 percent.

[jk]

Re: China and Blackstone - leverage?

just came back to this thread from the "pe clo's = re cdo's" thread. i have to laugh at the thought of all the gov't investment funds buying assets cheap when the pe/hedge fund/lbo bubble goes. it reminds me of greenspan's ludicrous stated reason for supporting the bush tax cuts, i.e. that without the tax cuts, the surpluses were going to get so big that the u.s. gov't would have to start buying private assets. problem solved!! it will be the CHINESE gov't buying up the private assets!

[bill]

Re: China and Blackstone - leverage?

The point is if you cannot purchase the asset in a open public fashion, take it private and get rid of the public headache. Hide it as much as possible to achieve the investment objective without a public regulated environment.
The assets foreigners want in the US are ones like the Unocal, Dubai port deal, and power plants, infrastructure,ect. ect.

I say the 3 billion in the Chinese Blackstone deal was applied as option money used by the Chinese as a deposit for the purchase of more than just 3 billion worth of assets. Using the 3 billion option money to leverage and control assets for a future closing, assets already controlled, leveraged and owned by Blackstone.

http://www.bloomberg.com/apps/news?p...XTE&refer=home

Dec. 10 (Bloomberg) -- Blackstone Group LP is planning a bid for Rio Tinto Group that may include China's sovereign wealth fund, the Daily Telegraph reported, without saying where it got the information.

[jk]

Re: China and Blackstone - leverage?

blackstone = black-beard

In gay slang, a beard is a companion of the opposite sex used to hide a homosexual's sexuality by appearing in public as if the two were a heterosexual couple. It is generally considered poor form for the gay partner not to reveal his or her homosexuality to the other partner.
en.wikipedia.org/wiki/Beard (female companion)
In sports betting a beard is a friend or acquaintance who is used to place bets as to conceal the true identity of the real bettor.
www.24-7wagering.com/details.php
A player who will place a bet for another player (usually a cheat) who does not wish his/her identity to be known.
cardshark.us/fr_gloss_text.html
A proxy bettor, a front man.
www.moldea.com/glossary.html

[jimmygu3]

Re: China and Blackstone - leverage?

blackstone = black-beard

In gay slang, a beard is a companion of the opposite sex used to hide a homosexual's sexuality by appearing in public as if the two were a heterosexual couple. It is generally considered poor form for the gay partner not to reveal his or her homosexuality to the other partner.
en.wikipedia.org/wiki/Beard (female companion)
In sports betting a beard is a friend or acquaintance who is used to place bets as to conceal the true identity of the real bettor.
www.24-7wagering.com/details.php
A player who will place a bet for another player (usually a cheat) who does not wish his/her identity to be known.
cardshark.us/fr_gloss_text.html
A proxy bettor, a front man.
www.moldea.com/glossary.html

So...China's....gay?

[jk]

Re: China and Blackstone - leverage?

-

So...China's....gay?

not what i had in mind, but thought provoking....
i think woody allen, in one of his movies, played "the beard" - in that instance the supposed beau of a mobster's mistress, so the mobster's wife wouldn't suspect the truth. blackstone is the beard - the "front" - for china. so maybe we should call it blackbeard... arghhh.

[bill]

Re: China and Blackstone - leverage?

Private, Private, Private It gets better in the article below they call it “secretive society of funds”.


http://www.economist.com/finance/dis...ory_id=9230598

http://www.telegraph.co.uk/finance/n...Investors.html

Sovereign wealth funds back BlackRock move to acquire Barclays Global Investors

Three sovereign wealth funds have emerged as the mystery backers who are making possible BlackRock's $13.5bn (£8.2bn) proposed acquisition of Barclays Global Investors.



By Louise Armitstead in London and James Quinn in New York
Published: 9:28PM BST 12 Jun 2009


The Kuwait Investment Authority (KIA), the Government of Singapore Investment Corporation (GIC) and the China Investment Corporation (CIC) contributed $2.8bn of the $6.6bn cash element of the deal that will create the world's largest money manager and was first reported in the Sunday Telegraph