The Double Dip
Jun 1, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Although the US economic news has barely affected the stock market, it has become apparent to many that we are now in the midst of a “double dip” recession. In other words, all the efforts at recovery have not stopped the economy from dropping again. Signs abound of this. Yesterday, the Case-Schiller index showed home prices declining another 3.6% since last year. Prices seemed to have stabilized in 2009 and 2010, but much of this appears to be due to an $8000 federal tax credit. Now that the credit has expired, prices are continuing their descent. In addition, housing starts are at their lowest levels in 40 years. I can say that anecdotally, I started looking at purchasing residential properties for investment a few months ago. What I found out that in most cases, homes were sitting unsold for at least 6-9 months, with frequent price reductions. I always found that in many cases, I was the only bidder out there.
Then today, ADP’s private sector employment report was expected to show a gain of 183,000 jobs. The actual number came in at 38,000, the lowest number since September of 2010. The more comprehensive public and private number is expected Friday, and as expected, that estimate is already coming down sharply. Although the Fed has been leaning against “QE3”, it appears that it may be back on the table. In any case, it would seem that for the average American, the economic situation today is not improving.
Meanwhile, I read a great article by Floyd Norris in the New York Times about the Longtop Financial debacle. Here is a link, and its’ well worth reading.
Finally, it appears that the New York Mets may have found an investor in hedge fund whiz kid David Einhorn. Einhorn, who runs Greenlight Capital, is believed to have offered $200 million for a 33% stake in the Mets. According to ESPN, he has an option to go to majority ownership in three years. In addition, if the Wilpons (who currently own the team) wish to buy Einhorn out, they may do so, with Einhorn keeping half of his original stake. Although final terms have not yet been agreed to, if ESPN is correct, it seems like a heck of a deal for Einhorn. According to Forbes, the Mets are valued at $727 million, so his valuation of $600 million appears cheap. If the Wilpon’s do buy him out (which appears unlikely due to their legal issues), then Einhorn gets a chunk of the team for the time value of $200 million for three years. However, I think the real value for him is fulfilling a lifelong dream of owning his favorite team. As there is only a limited number of professional sports teams out there, and very few for sale, the opportunity to actually own one, let alone his childhood favorite, is priceless. As a Mets fan, here’s hoping he can turn things around on the field.
