Repo Man

Private equity has not yet confronted its achiles heal - debt. In fact, deleveraging has only just begun, but it will: S&P LCD reports in the US, the top or "mega" buy-out firms have >$400 billion of responsibilty on their portfolio. These firms face over $21 billion of debt maturities in the next two years, followed by another $50 billion in 2012, $115 billion in 2013 and $192 billion in 2014. And you think your mortgage bad. The over-leverage originated from 2005 to 2007 when credit easy and PE firms took on lots of companies in multi-billion-dollar deals. Now, with credit availability gone, refinancing has become increasingly difficult and firms are seeking new ways to do so. Some are putting new equity into their portfolio companies, selling stakes in businesses to strategic buyers and then buying back debt in their own companies at a discounted rate. Firms are also attempting to persuade lenders to extend maturities on existing loans. The Financial Times notes KKR has successfully pushed back the maturity date on loans coming due in one of its biggest buy-outs so presumably others will to.

Debt, of course works both ways. During cheap credit cycles leverage most efficient whilst de-leveraging a business via its cash-flows creates equity value for investors. It also increases substantially the potential return: Buying a company for $100 then selling it for $110 nets a $10 gain or 10% gross irr over a year. Buying and selling the same asset at the same prices but using $90 of debt results in a $20 gain on the initial $10, or a 100% irr over the same period. This a 10-fold increase in performance. Of course, the debt must be serviced and often this means redundencies or failure when times slow, like today. We may yet see many companies go tits up. For good or bad, the greatest (hubristic) transactions from the largest firms - we then argued that scale a competitive advantage and the bigger the best since larger deals face less competition (fewer dudes can afford the deal) so better terms and indeed, the largest transactions >$1 billion went for multiples 5-6.5X while mid-market or <$1 billion 7-9X from 2005-07. But now the chicken has come home to roost and payments must be .. paid.

Good news, then, that there is some considerable negotiation between borrower and lender since neither wants failure. Restructurings occupies a lot of GP time, which is not good if you are paying a 2% fee to a manager to invest your dough. This not the funds competency, after all. But what alternative, really? This is where we need a Repo Man - remember Emilio Estevez? Now that was a cool flic. He'd solve our problems fer surz.

Piscine And Lazy

Since I've been talking about swimming this week, here I am in 1984 at Geneve Natation 1885. Note my groovy trunks - no rubber there. This BTW le Piscine de Vernets, a wonderful nine lane, 50-meter indoor pool whose surrounding made of marble. Outside, a separate 25-meter pool and ten meter diving platform which I refused to master. Since Switzerland, the deck spotless and locker rooms organised around a clean, open and orderly changing area complete with body-dryers and separate changing rooms for the athletes. Why can't every pool be such?

Today the first work day of August and boy, it is dead. The Nordics start their summer first taking off all of July. The rest of Europe follows in August and London's population, I read somewhere, drops 15%. Traffic suggests this to be true. Calls are also way down and today I barely have an email. No scandals in the news. Even the Thames seems to take a lazy turn now that we are outside the high lunar tides. 

I don't complain, mind you - there are plenty of things to do like web searches or buying a house. The kids, for there part, bonkers from boredom. At one point this morning I spot Eitan lying on the floor, face-planted into a pillow.

Today begins football-camp which keeps the mopes occupied for six hours, God bless. I drop the Shakespeares off and wave good-bye. Yes, August a cruel month if you are, like, the only family in Richmond not going on hols.

The Best?

Rome's final tally: 42 world records including the final-final event the men's 4X100 medley relay which the Americans destroy by two-seconds and four teams under the standard set at the Beijing Olympics. From January 1, the rubber condom no more. And the damage? It may take 20 years to catch up to today, if ever. These are athletes who may be at the very peak of human capability unlike, say, the Montreal Olympics in '76 where 14 World Records set. 33 years ago new training principals coming into practice and stroke technique considered seriously for the first time. Today, these advances embedded so now most time-improvements from drugs (East Germany in the 1980s) or height -Michael Gross, Matt Biondi or Ian Thorp or body-freaks: Mary T. Maher, Michael Phelps. And the suit trumps them all. Once pools crackled when a WR broken and now it is ho-hum. Nobody really believes the seal-skinned times, and as Phelps coach Bob Bowman says, no ten year old motivated by these athletes who most likely will fade with their suits.

Maegher, pictured, swam the 200 meter butterfly so fast that it stuck for 19 years (there was talk it might never be broken but that absurd). In August, 1981 she cranked a 2.05.96 which Susie O'neil bettered in Sidney in 2000. Maegher's 100 meter fly equally impressive - 57.93, which Stanford legend Jenny Thompson broke (also) in 2000. To put this in perspective, the 100m fly WR finally broken this week in Rome by nearly 1.5 seconds thanks to the suit LZR Racer (who cares about the swimmer - but it is Sarah Sjostrom of Sweden, all of 15). Since Maegher, the only athletic equivalent I consider on par is Paula Radcliffe's 2:15.25 London Marathon in 2003. No other women has gone under 2:19 (Flo-Jo changed the record books with her '88 Olympics but she was way juiced and sadly died, aged 38). I think we are going to see Usain Bolt do some things that will stick around for a half-generation. His 9.683 at Beijing slow since he hammed up the last ten meters; experts believe he could have gone 9.52 (I avoid team sports for the Michael Jordon - Scottie Pippen conundrum. MJ the greatest but would he have been as good without Scottie?). Lance Armstrong also makes a case as does Roger Federa but theirs longevity against various skilled competitors. For raw effort, I rank Maegher up there with the best. Ian Thorp would have been, but he is totally erased and Phelps? His eight golds and WR hard to argue but 19 years? Really, though, whatever - these are the people who make life interesting.

Rowdy Gaines points out every swimming World Record, with the exclusion of the 1500 meter freestyle, set from 2008.

Chicken's Feet And More Health Care

Somewhere in our yesterday we find Chinatown for dim sum. Our last order includes chicken's feet and, before arrival, I bet Madeleine she won't eat everything on the table. She is seriously dubious (as she should be) while Eitan refuses the wager. At stake: £1. Since Madeleine in debt having pre-spent her allowance, temptation great and she commits. So the feet arrive, we are titillated, and you know what - pretty good to, once you get over the display that is.

Switching gears, did you know that US health care costs are greater than the entire British economy, which is the fourth largest in the world? The main reason Americans have not received pay increases, in real-terms, since the 1970s because of health's escalating costs. While 47 million may be without insurance, 80% have it and don't want it to change since treatments best and most thorough in the world, bar none. Unfortunately, it also makes us way less competitive - GM cannot sell cars when competing with Koreans or Chinese who don't have the benefits legacy. OK, GM sucks with their SUVs and Ostriche-head-in-sand management. But IBM, GE, Boeing and any US company competing on the global stage has diminishing prospects.

Georgie And Monkman

We visit the National Portrait Gallery yesterday and this is "Georgie" by Mary Jane Ansell, 2009, at the BP Portrait Award. BP sponsoring one of the most prestigious portrait competitions in the world showcasing modern .. portriture. First prize is £25,000, chosen this years from a record >1,900 artists. Fifty-six paintings, including the three shortlisted artists - Annalisa Avancini for Manuel, Michael Gaskell for Tom and Peter Monkman for Changeling 2 - alongside the work of the BP Travel Award 2008 winner Emmanouil Bitsakis who visited China in celebration of the 2008 Olympic and Paralympic Games. There are five judges, and I met one of them several years ago: Chair and Director Sandy Nairne. We discussed charitable giving but unfortunately for me (and good for the NPG) there was a very qualified gal from Morgan Stanely leading the charge (she being American so no probs asking for contributions).

Monkman wins First Prize BTW, announced 16 June; he has also been included in the award exhibiton in 1999, 2001 and 2003.When not brushing, he is Director of Art at Charterhouse School in nearby Surrey; he studied visual arts at the University of Lancaster, John Moores University Liverpool and the University of London. Monkman's portrait is part of a series of his daughter exploring the concept of the changeling, a child substituted for another by stealth, often with an elf. The initial ideas for this portrait came from photographic studies of Anna playing in woods in Brittany "where the light had a magical quality." he notes.

Sutton Hoo And Rome

Here's me by artifacts from Sutton Hoo (pictured) that Sonnet studied in Art 100 at Smith. It being the site of two Anglo-Saxon cemeteries of the 6th century and early 7th century, one of which contained an undisturbed ship burial including a treasure chest of outstanding art-historical and archaeological importance. This of a primary importance, dear reader, to early medieval historians because it sheds light on a period of English history which is on the margin between myth, legend and historical documentation. Use of the site culminated at a time when the ruler (Raedwald) of East Anglia held senior power among the English, and established Christian rulership in England.

Meanwhile, the ship-burial, probably dating from the early 7th to 9th century and excavated in 1939, is one of the most magnificent archaeological finds in England for its size and completeness, far-reaching connections, quality and beauty of its contents, and for the profound interest of the burial ritual itself. Why it was buried and where - just outside of London on the Thames - one of those great mysteries.

At home, we surround the TV to watch Milorad Cavic vs. Michael Phelps, who famously beat Cavic by 1/100 of a second at the Olympics to ensure his eight goals. Cavic takes his first 50 inside 22.6 and well on-target for WR with Phelps a half-body length behind. The turn puts Cavic up by a quarter and the last 25 meters a dog fight, which Phelps wins with a 49.81 to 49.95 both the first men ever below 50-seconds. Wow. Phelps pumps his arms skywards - he is an angry fellow having lost the 200 freestyle and written off in this shorter race. His eyes say it all: I am the man. Dara Torres meanwhile quips that she is 25 years older than some of her competitors; her coach BTW has blood cancer and having a transfusion so he can see Torres 50 meters freestyle final Sunday. I am forced to admit: it is not all about the swim suit.

"Let the swimming do the talking."
--Michael Phelps, August 1, 2009

Brit Museum

Here we goof beneath the Foster quadrangle next to the Reading Room.

The kids prepared, having been here this year with their school, and Eitan makes a sheet of hieroglyphics for him and Madeleine to check-off during the Egyptian hall. Symbols include the 'key of light,' scarab, serpent and lotus flower. Sonnet and I follow the Shakespeares from obelisk, to sculpture and finally the Rosetta Stone herself while the kids fill up their page with marks. We love the enthusiasm. Eitan then happily drags us to see "ginger" who is a mummy with - weight for it - ginger hair. Me to Madeleine: "Tell me one thing about a mummy." Madeleine: "It has..." Me: "Do NOT say ginger hair." Eitan adds helpfully: "His name begins with 'g.'

Ginger entombed sometime around 2000 B.C. His crypt includes clay pots and other nick nacks confirming the Egyptian belief in the after-life. Of equal interest next door is Cleopatra whose sarcophogus also on display - she was entombed at 17.

We then hussle through thousands of years of history and many civilisations so Madeleine can hit the gift-shop. She has several pounds though not from her allowance, which was pre-spent weeks ago. So she buys a Rosetta Stone magnet.

Me to Madeleine: "Who's on top of Nelson's Column (in Trafalgar Square)?
Madeleine: "How should I know?"
Eitan: "Christopher Columbus?"
Me: "I'll give you one hint - it is not Christopher Columbus."
Eitan: "Is it Nelson?"
Me: "Good grief, thank you."

Bloomsbury

We walk from Holborn across Bloomsbury Square, which was developed by the 4th Earl of Southampton in the late 17th century and one of the earliest in London. The Earl's own house, pictured (I think), then known as Southampton House and later Bedford House after the square and the rest of the Bloomsbury Estate passed by marriage from the Earls of Southampton to the Dukes of Bedford, occupied the whole of the north side of the square. The other sides lined with typical terraced houses of the time, which were initially occupied by members of the aristocracy and gentry.

By the early 19th century, Bloomsbury was no longer fashionable with the upper classes. Consequently the Duke of Bedford of the day moved out of Bedford House, which was demolished and replaced with further terraced houses. In the 19th century the square was occupied mainly by middle class professionals. The writer Isaac D'Israeli lived at No. 6 from 1817 to 1829 and for part of that time his son, the future Prime Minister Benjamin Disraeli lived with him. In the 20th century most of the buildings came to be used as offices.

Today the area captures a totally different vibe then the rest of modern London. It's hard not to imagine coal fires, Dickens or chimney sweeps. The brownstones dark from age and traffic pollution which fits their mood - old, and left behind yet totally compelling. This is where London began to modernise and the square a big part of it - imagine a million people together without modern sewage? A bit of space must have been heaven sent for those who could afford such luxury.

Red And Health Care

Every corner offers something. Today at the Hayward Gallery where we await a bus, I meet a Uruguayan group photographing a pair of healthy legs. I don't really know why since I wasn't especially focused on that (Sonnet: "do you have to act like you're in college?"). We eventually take a double-decker and cross Waterloo Bridge admiring Parliament, Big Ben and the London Eye, which are all at the edge of my photograph. On our way to the British Museum.

I am no expert on health care but as a consumer, I have never been disappointed in Britain. Leaving St. Mary's with a healthy boy and girl and never receiving a bill nor administrative delay remarkable. The NHS does a fine job for primary treatments. If not sufficient, we have comprehensive family insurance for £145 per month, which seems reasonable. So government sponsored health care works - here, the health care cost is aprox. 10% of GDP while providing 100% coverage (by comparison: Switzerland is 10.9% GDP, Germany 10.7%, Canada 9.7%, and France 9.5% according to the OECD. All these countries provide full coverage for their citizens). The US stands at 15% and forecasted to rise to 20% by 2017 (Keehan, S. et al. “Health Spending Projections Through 2017"). This while 50 million go without insurance. No wonder Obama taking on the status quo - it is otherwise totally fucked. And these Republicans led by the louse Billy Crystal who hoisted Sarah Palin on us, wacked for going against the President to regain a political foothold rather than on merit. The so-called Blue-Dog Democrats are also nuts. As Krugman points out, the US government already all over health care. The US military has the best service of anybody and administered by Uncle Sam. Medicare ensures the over-65s covered whereas >40% of this bracket uninsured before the program in '65. Rather than use these models, or other countries, as favorable examples for change the Elephants spread fear of socialism and other nonsense. I'm not going into the four components of the Obama plan, but suffice it to say that doing nothing also a collective decision. Unfortunately we know the outcome of this one while the clock ticking.

Swimming

Battersea Station, facing north across the tracks.

Eitan and I watch the morning swimming heats from 8:30AM, as we have done every day this week. Today Dara Torres competes the 50 meters butterfly but it is Michael Phelps we anticipate: his 100 meter fly up shortly. The swimming nice background noise, and I also catch the evening finals usually with my feet up. The pool's camera work everywhere - rigging above the pool gives overhead shots while the under-water system offers a perfect stroke review. I think the side-tracking most powerful especially for the breast stroke or fly where one has a sense of the speed and racing. The men, or what we can see of them under their polyurethane rubbers, have beautiful, lean bodies with soft muscle tone unlike any other sport. I think fillet Mignon. It really is the best training - no pounding nor injury. The body horizontal so the heart works less or for longer. Training a combo of stretching, aerobics, power and yoga. I love the transition from poolside into the water which is a complete sensory shift in a fractional moment (usually I concentrate on the temperature shock since a good pool heated at 78-80 degrees and this initially no fun). The first arm strokes most amazing, jump starting the heart, sending blood through the body and pumping oxygen into the brain. It also leaves a wonderful, full-body fatigue afterwards. Very mellow and stress reducing. I have never had a worse day for the sport.

The Dogs

Pictured - the Summer Exhibition, Royal Academy.

From the museum we head to the dog pound so Madeleine can see the various breeds. And to look into a "rehoming" too, of course. The pound dates to 1860, when The Temporary Home for Lost and Starving Dogs established by one Mrs. Mary Tealby of Holloway, North London (later named Battersea Dogs & Cats Home; Battersea, where we are today, became the permanent location in 1871). In 1885, Her Majesty Queen Victoria became Patron of the Home, and it has remained under Royal Patronage ever since. Queen Elizabeth II is the Patron today and Prince Michael of Kent the President. Over the years, the kennel has been profiled by Charles Dickens to the BBC and today has a income >£12 million financed entirely by voluntary donations. It is where London's strays and lost dogs and cats are homed and several beefy catchers with their nets on site. This is a caring institution - in many ways, it shows London at its best. The animals well looked after and the volunteers and staff committed to finding homes for their friends. There is never an indication of ill-treatment, the pens spotlessly clean, and the building architecturally interesting with central ramps leading up the yards to an impressive sky-window casting sunlight downward. The dogs are eager to please and how sad not to be able to help each one. I would love to take pictures of the many personalities but photagraphy prohibited as the poor animals already agitated by us visitors.

Rome update: since Sunday, 28 swimming world records broken covering 21 events (a number of races improved from heats to finals). Swimming's governing body FINA has completely failed the sport regarding the swim suit.

Madeleine to a dog: "Don't you worry. I am going to come back for you. I am going to bring you home."

Summer Collection

Over breakfast I mention a visit to the Royal Academy which gets an immediate, negative response. Madeleine: "That is so not part of the program" and Eitan lends his full, indignant, support. I sigh - it is not like going to the dentist for Pete's sake. Once the Shakespeares realise their fate sealed it becomes a negotiation of time - like, how much we will spend there. We start at thirty-minutes and take it down to 20 but then their attitude irritates me so I bring it up to 25 then 30 and 35 (Eitan: "Madeleine, don't you see? Just stop talking!"). So from breakfast we stroll along Piccadilly to the RA's Annenberg Courtyard. Last time we were here we met Bryan Kneale whose work then on display. Today three new sculptures on offer - pictured, with the Burlington House reflected. I don't have the artist so will have to return later.

My intention to drag, er - show - Eitan and Madeleine the pre-Raphalites but realise the Summer Exhibition still with us until mid-August and much more compelling for them. The collection includes a wide range of new work by established and unknown artists in all media including painting, printmaking, photography, sculpture and architecture. Much of it strange or shocking, like the piercing eyes of an Iranian women whose over-sized print line-stripped with a cutting knive. Or a Damian Hirst sculpture of silver-man who has removed his skin with cutting scissors. All wonderful and I ask the kids to pick a something that moves them, to be described to dear me later. Madeleine goes straight for a modern: "Lots of swirling paint. Blue. Red. The strokes are heavy and wide; the artist must have used a large brush. It made me feel happy and a bit worried." while Eitan finds an architectural model: "I like thinking of all the people living there"

W'Loo

Thursday, and I have the kids all to myself. The day begins promisingly - sunny and kids in a good mood until Madeleine learns, to her horror - public transportation! She breaks into tears "can't we just take the car, dad? Oh, please .." I consider her sad sack for a moment but no way. Firstly, traffic into town a drag. Then: £8 congestion charge which I would probably forget to pay netting an £80 fine; then parking and finally the planet. Why on earth would we not take public transpo? which gets us exactly to where we want to go: Green Park in Mayfair for breakfast at The Wolseley. A nice bonus is we talk, something which rarely happens when driving and the tuned out passengers watch their urban existence sail by. So on the train, I receive favorable looks: aww, dad with his children. A younger fellow vacates his seat so we can sit together; a lady comments that Eitan and Madeleine well behaved. I'm, like, what? The Shakespeares well behaved? To their credit they are not running around or shouting (to my credit, they know the Hand of God will fall upon them for such behavior). Self contained we comment on various things like Battersea Power which flashes by or who Manchester United will buy with the £81MM transfer money from Ronaldo. It's an ad-ven-tur, which we all enjoy happily once en route. My photo from Waterloo Station underground.

Gold/ man

Ok, so back to Goldman Sachs for a moment. It appears the firm using its new taxpayer-subsidized status to bring increased risk to the financial system, a group of House members charged Monday. Here is the letter:

"
Dear Chairman Bernanke,

In the fall, Goldman Sachs secured access to government funding by converting from an investment bank into an ordinary bank. Despite this shift, the CFO of the company, David Viniar, said last week that the company is continuing to operate as if it were still a high-risk investment bank: "Our model really never changed," he noted in a quote to Bloomberg. "We've said very consistently that our business model remained the same.
...
"

This statement appears accurate. Earlier this year, the Fed granted a temporary exemption to Goldman from standard bank holding company Market Risk Rules, allowing them to continue operating as an investment bank. Goldman and its employees have taken advantage of its new government subsidies, and the retained ability to bet big. In its most recent quarter, Goldman earned high profits of $2.7 billion on revenues of $13.7 billion, with 78% of this revenue derived from high-risk trading and principal investments. It paid out much of this revenue in compensation, setting aside a record $772,858 for each employee at an annualized rate. The company's own measurement of risk, its Value-at-Risk model, recently showed potential trading losses at $245 million a day, up from $184 million last May.

Bloomberg reports that despite Goldman's exemption from bank holding company regulations, thay have accessed taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market. The only difference between Goldman today and Goldman last year is that today, the company is officially gambling with government money. Ta da - "heads Goldman wins, tails I - the taxpayer - loses."

Photo of Goldman Tower in New Jersey from earthinpictures.com.

Ocean Pacific

Shot of the OP from several moments ago, sent to me by surfing and investment buddy Hans (note the order). I cannot compare to Britain having never surfed here, but I do know there are good breaks in North Devon - here is a description of Cambeak from Global Surfers (dude!): "Left hand point breaking over rock. A hideously shaped stand up barreling sledge hammer lipped peak. Take off is free fall into a dredging pit, the wave then chills to a fast vertical wall. If the bottom turn from take off doesn't rip the fins out then you have pretty much made it. " Sounds about right.

There is no feeling that compares to knowing a swell hitting the following morning and you, up at 4AMwith your best friends, to paddle into 60-degree water to .. surf. Or boogey board. It is like being eight years old all over again - and sadly, very few things in life compare to that. One day I will return to my beloved ocean but it won't be for a while.

Sonnet with the kiddos today as Madeleine having her neck lump scanned to make sure not dangerous. Sonnet reports back nothing - absolutely nothing - to worry about.

Nuoto Roma

This neat photo by the AP of Mark Gangloff, a Munroe Falls native and graduate of Akron Firestone High who finished 11th in the semifinals of the 100-meter breaststroke at the swimming world championships Sunday in Rome. His family must be way proud. The swimming takes place all week with trials televised live 8:30AM GMT and finals from 5:30PM. Eitan and I watch together in the mornings and today Michael Phelps qualifies second in the 200 meter fly in 1:54 and change - his world record is 1:52.09 (which he swam without a rubber suit). To put this in perspective, when I was competitive it was a Big Deal to be under 2-minutes in the 200 meter fly and the great Michael "The Albatross" Gross never cracked 1:56, which this morning was needed to qualify for the consolation finals. One difference from now and then is the racing suit, which aids performance. After only three days in Roma, for instance, 11 World Records set including the women's 100 and 400 meter freestyle (first women, Federico Pelligrini, under 4-minutes), 100 breast, 100 butterfly, 200 I.M., and 4X100 freestyle relay and the men's 400 freestyle and 100 breast.

And what of the suit? The LZR Razer, which is sooo yesterday, uses ultrasonically bonded seams that fit a swimmer like a true second skin, as opposed to the stitched-up suits of the past. With low-drag panels embedded within the fabric, the suit designed in conjunction with NASA scientists to find the best performing fabric. The suit's pressure pulls in body mass, making the user more streamline. This has a particularly powerful effect with larger, muscled athletes like Dara Torres, who maintain a consistent exertion yet propelled further thanks to less water resistance. The LZR and similar suits also raise a swimmer's buoyancy levels, which also play an important part in speed. Ian Thorpe introduced a unique and powerful swimming style which took advantage of the saran wrap. Some of the women wear two of them at same time. These suits speed pace by 3-4%.

So swimming's governing body FINA reacts, finally, banning the seal skins from January 2010 making Rome the last competition where they are in use. This presents its own problems like what to do with the great majority of the recent records aided by technology? Do we ignore them or an astrix? Eventually things will equal out but it may take years for the last two to be surpassed. It bothers me that my times, which I worked hard for and am proud of, cannot be compared to what I see on television. It's like juice in baseball - it robs today's participant of their legacy and us old timers of our bragging rights.

"We've lost all the history of the sport. Does a 10-year-old boy in Baltimore want to break Paul Biedermann's record? Is that going to make him join swimming?"
--Bob Bowman, coach of Michael Phelps