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2. Goldman Sachs addresses limited aluminum supply

William Ackman's big short bet on Herbalife has proven to be massive loser so far. The stock has surged despite the well-orchestrated denigrations of the esteemed Ackman, who has suffered losses in the neighborhood of $300 million, according to media report.

Since Ackman, who runs Pershing Square Capital Management, announced his $1 billion short bet, famously calling the firm a criminal enterprise, the stock has soared 30 percent. Much of that rally has come in the last month. Plenty of others, notably Dan Loeb and Carl Icahn, have made a killing by betting against Ackman.

The latest bull to arrive on the scene is no less than legendary hedge fund manager George Soros. He's piled in, with a large purchase, though the exact size as of now is not clear. The bulls may be jumping on board, sensing that Ackman may be facing an imminent squeeze that would force him to partially unwind his short position. That of course would goose the stock.

The question for Ackman is how long he should stick with his bet?

It's not cheap, and there would appear to be little movement on the part of government regulators to shut the firm down, which he predicted last year.

The recovery in Herbalife's stock price "is weighing on Pershing Square's performance, leaving the fund with a modest 8 percent gain for the year," according to Reuters. "One thing working in Ackman's favor and cushioning the impact of the loss is that several other stocks in Pershing Square's portfolio have performed well, especially Procter & Gamble, Howard Hughes and Canadian Pacific."

For more:
- here's the article

Read more about: George Soros, William Ackman
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By Jim Kim

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3. Is it all over for Michael Dell?

Goldman Sachs has worked hard to repair its reputation, which was tainted in the immediate aftermath of the financial crisis. The bank seems to have succeeded in many areas, notably client retention. Certainly, CEO Lloyd Blankfein has been breathing easier. Given the bank's progress on this front, it will be interesting to see how it reacts to the great controversy that has erupted over Wall Street and the commodities markets. Goldman Sachs owns a lucrative metals warehousing unit in Detroit that has long been controversial, though it exploded as front-page issue just recently.

Certainly, the bank wants to avoid being stereotyped as a monopolistic entity out to corner a market, driving up prices to fatten profits. To be sure, it was hit with equally bad publicity not too long ago over its food commodities trading, which some said contributed greatly to poverty in the third world.

The bank has extended an olive branch in the form of an offer to speed up physical delivery of aluminum to users. It has also proposed changes to industry rules "amid claims that its warehouse unit created shortages and drove up prices," according to Bloomberg.

So far, no clients have yet accepted the offer to swap their metal stuck in queues for immediately available aluminum. "We feel horrible for consumers if they can't get metal," President Gary Cohn said in a CNBC interview. "We don't believe that to be the fact."

Big end users, the likes of Coca Cola, have in the past complained bitterly about the inability to access aluminum. And there is no denying that Goldman Sachs benefits. "Aluminum for delivery in three months fell 13 percent this year on the LME as stockpiles in warehouses monitored by the exchange neared a record. The premiums added to the LME price surged to a record 12 cents to 13 cents a pound in June, almost double the 6.5 cents in the summer of 2010, according to data from Austin, Texas-based researcher Harbor Intelligence. The surcharge fell for the first time this year in the week ending July 19, according to Harbor."

For more:
- here's the article

Read more about: commodities, Metals
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By Jim Kim

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4. HAMP modifications: high failure rate

As of now, it does not look good for his attempt to lead a leveraged buyout of his own computer company. Along with private equity partner Silver Lake, he has engaged in a high-stakes battle for the company, one being overseen by the board's special committee that once seemed so enthusiastic about his bid.

As it stands now, given the committee's refusal to change the voting rules, the bid will not likely generate the necessary support to allow the deal to move forward. The vote, which has already been postponed twice, is now set to occur on Friday.

Michael Dell has to do something fairly dramatic at this point. He could go ahead and raise his offer to $13.75 a share from $13.65 a share, without any conditions. Or he might go to Silver Lake and plead for an even higher bid, which might be a hard sell given the deteriorating state of the PC market.

If Dell's bid loses, he faces a stark future. He'll be tasked with trying to turn the company around as a publically traded entity and at the same time fight a possibly ruinous proxy battle. The likes of Carl Icahn would likely sponsor his own slate of candidates. The bottom line is that Michael Dell could be forced to give up the company he famously founded in his dorm room when he was in college.

All that said, Michael Dell and Silver Lake have not given up. "The two have pointed to share counts showing that more than 334 million shares had not been voted. That is nearly double the expected number," according to DealBook. "With the current vote close but in favor of the deal — a recent tally showed about 579 million shares voted in favor, while 563 million against — a change could put the buyers over the top." But time is running out.

For more:
- here's the article

Read more about: Leveraged Buyout, Dell
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By Jim Kim

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5. Fabrice Tourre found guilty

One of the dirty little secrets about the movement to modify troubled mortgages is that these modifications often don't work. For whatever reason, people who modify their mortgages all too often have failed to live up to the new terms, lapsing right back into a default situation. This sad fact becomes all the more troubling when the modification was enabled by taxpayer funds.

A new report by a special inspector has found that 16 percent of all the incentive payments awarded for loan modifications at Bank of America via HAMP ended up failing all over again. That amounted to $102 million in ill-used taxpayer funds. At Wells Fargo, the comparable percentage was 15 percent. Across the industry, taxpayers have lost $815 million in modification funds awarded for 163,811 homeowners who later re-defaulted, according to the report, which was noted by the Charlotte Observer.
This has not been lost on HAMP overseers.

A senior Treasury Department official told the media that the department has "studied the (redefault) issue since the beginning." The official said Treasury increased the per-mortgage funds for principal reduction after noting that borrowers with larger mortgage-payment reductions were less likely to redefault, which seems an obvious point. Some would argue that this is tantamount to boosting investments in losing stocks, or doubling down after losing at blackjack.

In the end, no one could guarantee that modifications would work. The economic carnage was tremendous, and jobs were hard to maintain. A high failure rate that costs taxpayers is of course lamentable, it was perhaps inevitable.

For more:
- here's the article

Read more about: Hamp, Modifications
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By Jim Kim

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