Why crack should not be legal…

People with money have a tendency to go insane. We all know this.

But sometimes I hear of deals being done that must have been done under the influence of illegal drugs. I don’t know how else to explain this story in Winter (Economic & Market) Watch…..

Like a bad Arnold Schwarzenegger movie, the LBO crowd is right back in the game with another very large takeover, this time Hilton Hotels by Blackstone. The total purchase including the balance sheet and debt looks to be about $29 billion. Typifying just how loonie these transactions have become, HLT has operating income of about $1.2 billion, or a mere 4.1% of the take out price. Assuming $25 billion in debt, that would place debt service at about $2 billion a year. Blackstone plans no divestitures, so the math is straightforward, and the presumption is as well, just borrow the balance. This is definitely the Terminator roulette school of business economics, with now alarming amounts of debt playing the same all or none formula.

For those that did not understand the above, Blackstone took on so much debt to buy Hilton Hotels that the interest payments exceed the income that Hilton Hotels is likely to bring in for the foreseeable future. Granted, Blackstone might have some kind of deal with China, but this is still nuts.

As Felix Salmon says…..

Lenders, in this situation, are essentially taking equity-like risk. They’re looking at Blackstone’s track record, which is stellar, and counting on Steve Schwarzman being able to raise the value of the Hilton brand so much that he can sell it off in five years’ time and repay the loans in full. This is dangerously close to the “greater fool” theory of investing: my loan might not make any sense on its own, but somewhere down the line someone with an even bigger credit line will take me out. As far as I can make out, no one has the slightest intention of actually paying down any of the principal.

Thankfully, not everyone is nuts. The bigger (smarter?) bond market participants are putting their foot down as this Bloomberg story shows….

The world’s biggest bondholders have had their fill of leveraged buyouts, convinced that increasing mortgage delinquencies will drag down the U.S. economy and drive debt-laden companies into default.

TIAA-CREF, which oversees $414 billion in retirement funds for teachers and college professors, is boycotting some debt offerings used to finance LBOs. Fidelity International, a unit of the world’s largest mutual fund company, and Lehman Brothers Asset Management LLC, the money-management arm of the third- biggest bond underwriter, say they’re avoiding debt from buyouts.

Investors are getting skittish just as private-equity firms led by Kohlberg Kravis Roberts & Co. and Blackstone Group Inc. prepare to sell $300 billion of bonds and loans to finance LBOs, according to Bear Stearns Cos. In the past two weeks alone, more than a dozen companies were forced to postpone or restructure debt sales.

Is Musharraf really going to allow NATO strikes in Pakistan?

In an article in the Asia Times Online, Syed Saleem Shahzad claims that Musharraf has given NATO the green light to cross the border into Pakistan. Shahzad’s claims are pretty far reaching. Read this passage….

KARACHI – Since last September, North Atlantic Treaty Organization forces in Afghanistan have been pressing Islamabad for the right to conduct extensive hot-pursuit operations into Pakistan to target Taliban and al-Qaeda bases.

According to Asia Times Online contacts, NATO and its US backers have gotten their wish: coalition forces will start hitting targets wherever they might be.

Pakistani President General Pervez Musharraf is expected to make an important announcement on extremism during an address to the nation in the next day or two.

The ATol contacts in Islamabad say that coalition intelligence has pinpointed at least four centers in the tribal areas of North Waziristan and South Waziristan on the border with Afghanistan from which Taliban operations inside Afghanistan are run. These bases include arms caches and the transfer and raising of money and manpower, the latter in the form of foot-soldiers to fight with the Taliban-led insurgency.

Operations inside Pakistan might be carried out independently by the United States, probably with air power, by Pakistani forces acting alone or as joint offensives. In all cases, though, the US will pull the strings, for instance by providing the Pakistanis with information on targets to hit.

Musharraf has apparently already told his military commanders, the National Security Council and decision-makers in government of the development.

If Shahzad is not just blowing smoke and Musharraf has really agreed to this one wonders what pushed Musharraf over the edge? Is it the problems with the Red Mosque? Did Cheney threaten to stop the flow of money if Musharraf’s did not do more to help?

I doubt Musharraf will be able to hang onto power if NATO starts crossing the border. But then, I doubt that Musharraf will be able to hang onto power for long no matter what he does. So maybe Musharraf is willing to take the gamble. Or maybe Shahzad is lying through his teeth.

Update Summary 07-05-07

We have a photo theme today, folks.
If you’d like to see some nice photo blogs, head over here.
Filed under The Odd Bag.
To read the introduction of my the new, less than wonderful, Photos section, go here.
Filed under Letters.
To see the first posted photos “Study in Siberian Irises” go here. More pictures to come in the […]

Never Simple

I have added a photo section to the silverwarethief website. As I have mentioned elsewhere, I desire to create a true photo blog. But this addition to the silverwarethief website is not that. I’m not entirely sure what this addition to the silverwarethief domain is . . . an experiment, I guess, as are all […]

Is Myanmar selling Iran Uranium?

I don’t know what to make of this essay. You should never judge people by how they come across in print. Especially when the print in question was written about them by somebody else.

But as I read this essay profiling Aaron Cohen I was inclined to dislike him. He just struck me as the kind of guy who might make stuff up.

In fairness to Cohen though, his personality also reminds me an awful lot of a man called John Fairfield who rescued a lot of slaves in the mid 1800s. Fairfield was always showing off his bullet wounds and talking up all his close calls and he was definitely for real. So maybe Cohen is too.

Why worry about this question? Well, how much credibility you are willing to give to Cohen makes a big difference on what you think of this passage from the essay that I linked to above….

Later that day, Cohen was taken to see the area’s uranium mines — where the Shans told him soil samples had been extracted by the Russians as well as A.Q. Khan, the well-known Pakistani nuclear-weapons-scientist-turned-dealer: “These mounds are everywhere, where samples were being unearthed by other partners as well, including the Iranians and the North Koreans… I am the only Westerner [to see this],” Cohen wrote.

The intelligence minister then handed Cohen documentation of Khan’s entries into Myanmar and told him that the SPDC was selling Shan uranium to the Iranians, who were processing it into material for nuclear weapons. The route from Myanmar, the minister showed him, led straight through China to Natanz, Iran. “I’m no expert on weapons-grade uranium,” Cohen admits. “But they wanted me to leave with samples of what I saw.” Restating his human-rights mission, Cohen refused to discuss transport of the nuclear material. (“It’s a death wish to have that kind of stuff on you,” he says.) But he agreed to put a stack of evidence, including photographs of the Burmese and Iranian facilities, in the right hands when he returned to Thailand and the U.S.

A.Q. Khan, the founder of Pakistan’s nuclear-weapons program, confessed in 2004 to having been the mastermind behind a clandestine network of nuclear-arms proliferation that stretched from Pakistan through Europe, the Middle East and Asia. His network sold blueprints for centrifuges to enrich uranium as well as illicit uranium centrifuges and uranium hexafluoride — the gas that can be transformed into enriched uranium for nuclear bombs.

Khan is already known to have provided complete centrifuge systems to Libya, Iran and North Korea. He was pardoned by Pakistani President Pervez Musharraf and sentenced to house arrest after declaring on television that Musharraf’s government had not played a role in his schemes. Western governments have been denied access to Khan, but the British think tank International Institute for Strategic Studies recently published a report indicating that Khan’s network is very much alive, even without its decapitated head.

Eerily, the Pakistan-Myanmar link is backed up by a 2002 Wall Street Journal article detailing Myanmar’s nuclear ambitions: “The program drew scrutiny recently after two Pakistani nuclear scientists, with long experience at two of their country’s most secret nuclear installations, showed up in Myanmar after the 9/11 terrorist attacks in the U.S. Asian and European intelligence officials say Suleiman Asad and Muhammed Ali Mukhtar left Pakistan for Myanmar when the U.S grew interested in interrogating them about their alleged links to suspected terrorist mastermind Osama bin Laden, who Washington believes wants to develop a nuclear weapon.”

Burmese exile magazines, blogs and Web sites are rife with alleged wicked SPDC plots. But one question pops up over and over: Is there a link between Myanmar, which mines and refines uranium ore, and Iran, which requires uranium for its own nuclear projects? And, specifically, is Burmese yellowcake finding its way to uranium centrifuges in Natanz, Iran?

Cohen’s testimony suggests that the answer may be yes. From the mining sites, he was taken to meet several Shan men who said they worked as drivers for the SPDC at clandestine nuclear processing facilities near Taungdwingyi, Chauk and Lanwya. These men swore to Cohen that the SPDC was overseeing the production of yellowcake there and in several other locations, then transporting it on North Korean and Iranian ships as well as over land through China and Afghanistan, via a courier network, to the (then secret) underground Iranian plant in Natanz. They handed Cohen the coordinates for the facilities, saying that as ethnic Shans they could no longer do this work for a regime that was systematically attempting to wipe out their people. They had thrown their support behind the Shan State Army, they said, and wished him luck.

A few weeks later, Cohen hand-delivered that information to a source at the Pentagon. The following day (April 19), the International Atomic Energy Agency confirmed that Iran was running more than 1,300 centrifuges at its underground plant in Natanz (latest estimates put it closer to 3,000). Iran’s plan to install 50,000 centrifuges there to enrich uranium made headlines, with the BBC running satellite photographs of the facility. But no major media outlet noted the Myanmar connection, and the story was soon buried in the subsequent frenzy over the Virginia Tech massacre.

There is more in the essay, but you get the picture. The question is, how much of it should we believe?