30SEP08:
31DEC08 INDICES:
FTSE100:3550
DOW30:7550
# HEDGE FUNDS:4425 30JUN08: Oil to be USD200 by 30OCT08 USA Inflation to be 7.5% by 30OCT08
...oops 23APR08:
Next Rights Issue:
HBOS...yes
All & Lec ...
...1 Nil. 17APR08: Oil to be USD127 by 30SEP08
...16MAY08 losing my touch 27FEB08:
2 Banks go bust by 30JUN08
BS down, Lehman (a bit late I know) 20NOV07: Northern Crock to be sold for 15p
Nationalized 01NOV07: Oil to be USD103 EOM
...peaked too soon 08OCT07:
SEC to fine Goldman for pricing issues
...still waiting 15JUN07: ML to buy-out BS
JPM got there first 06JUN07: The Big Crash: 17OCT07
...well it's here
Take a bottle of water, add some color and vitamins and make 400%. Now I understand why the US markets are in denial.
Yesterday I got sweaty in New York and despite milk, water, bread and gas prices having shot up, with Manhattan Real Estate prices being held up by "foreigners", who are undoubtedly the same people who are keeping London property prices inflated, everybody is smiling and partying like crazy. I stood in Times Square outside Lehman and Morgan Stanley but nobody was jumping onto the pavement (perhaps falling onto that naked country and western singer who has more impressive body parts than guitar technique but that is for another blog).
So it's official. The bull market is back.
The hedge fund news is light on the ground, the way we like it, so I have played around with the format of the letter to annoy you.
Today we look at:
Inside Trading in prison.
Monopoly USD.
Why European's are useless but are the only shoppers in New York.
The Indian Curry house that my delicate taste buds were assaulted is exposed.
Old timers and Fixed Rate timers face a tough Christmas.
Did Hyperion and Bridgewater act on inside Fed information? Never.
Why European banks were the big losers in the U.S. subprime meltdown
European banks haven't been quite so lucky, as some of the biggest names in continental finance have been laid low on U.S. subprime debt. In March, Natixis, a large French bank, said it had $1.4 billion in exposure to the U.S. subprime market, having extended credit to failed subprime lender New Century Financial. In July, IKB, a German business lender, came a cropper on bad subprime bets, precipitating a bailout. In August, state-owned SachsenLB, having made similarly ill-timed investments in U.S. subprime mortgages, bailed out and then sold at a knockdown price. On Monday, Swiss giant UBS, a far larger and more sophisticated operation, said that problems, "mainly related to deteriorating conditions in the US sub prime residential mortgage market," would force it to take a charge of about $3.4 billion and cause the company to suffer its first quarterly loss in nine years. Executives' heads rolled....
Is that because the Europeans have more stringent accounting practices, are more useless, or are mostly have their borders on France?
Court Says Hedge Fund Insider Trading Requires Jail Time
The First Circuit Court of Appeals in Boston has ruled that 36 months of probation for a hedge fund manager convicted of insider trading was too lenient, saying that the crime requires doing some time.
Michael Tom of Waltham, Mass., was convicted last year of making $750,000 in ill-gotten gains—for himself and his hedge fund, GTC Growth Fund—trading on insider information about Citizens Financial Group's acquisition of Charter One Financial. The trial judge sentenced Tom to 36 months' probation, including six months in a community confinement center, arguing that Tom's tipster was the truly culpable culprit and was only hit with a years' probation. He also said that prison time on top of the SEC sanctions Tom faced would be too much punishment for the crime.
The only problem, prosecutors said, was that federal sentencing guidelines called for a minimum of 37 months in prison. The First Circuit concurred.
“We agree with the government that the sentence is unreasonable and that it did not give adequate consideration to the seriousness of the offense, the need for general deterrence for white-collar crimes, and the need for some imprisonment,” the court wrote in its Monday ruling. It remanded the case to U.S. District Court for resentencing....
MFS Investment Management is adding its name to the list of mainstream money managers betting that recent market turbulence will fail to diminish the appeal of hedge funds and other alternative investments.
MFS Investment Management said last week that it had set up a subsidiary, called Four Pillars Capital, to provide seed capital to hedge funds. The subsidiary will run as a separate entity, with MFS providing operations and marketing support.
Robert Manning, MFS president and chief executive officer, said his company was responding to growing demand from its clients, mainly institutional investors, for alternative investments.
"We're taking away all the headaches that emerging managers have to deal with, and giving the managers the opportunity not to have to worry about the operational details," he said....
...and Hedges For Dummies sales go up again. As gardening leave gets to be fashionable once more, the Hedge Fund market will be crowded even more. Great.
The Equity Premium Puzzle, Ambiguity Aversion and Institutional Quality
Yet another good reason to shut down the IMF. Totally ridiculous paper by S. Nuri Erbas and Abbas Mirakhor:
With cross-section data from 53 emerging and mature markets, we provide evidence that equity premium puzzle is a global phenomenon. In addition to risk aversion, equity premium may reflect ambiguity aversion. We explore the sources of equity premium using some pertinent fundamental independent variables, as well as the World Bank institutional quality indexes and other proxies for the degree of ambiguity in the sample countries. Some World Bank and other indexes are statistically significant, which indicates that a large part of equity premium may reflect investor aversion to ambiguities resulting from institutional weaknesses.
It takes some doing to pontificate on the “equity risk premium” based on 10 years on data...
NATO, IMF, ECB, The World Bank - what are they here for?
Smaller hedge fund firms hard hit by the current tighter credit conditions may be bought by larger, more traditional fund houses or may simply fold, law firm Eversheds told Reuters.
"There's bound to be a shake-out of hedge funds after the credit crunch. There are a lot around ... and it's got a lot more difficult for them to stay in business," Mark Brady, a partner at Eversheds who specialises in alternative investments, said in a recent interview.
"There are buyers around who are sitting on significant amounts of excess cash and are willing to look at smaller acquisitions. Hedge fund assets are still very attractive to traditional fund houses."
The $2.5 trillion (1.2 trillion pound) hedge fund industry has seen its assets boom in recent years, with investors such as pension funds and wealthy individuals, attracted by the ability to make money in all market conditions, putting money with large firms and start-ups alike.
However, sharp volatility in credit and equity markets this summer -- caused by fears a surge in defaults in the U.S. subprime sector will lead to a wider financial crisis -- has proved a difficult environment for some, particularly in an industry where investors are quicker to pull their assets out if they fear large losses.
The average portfolio lost 1.53 percent in August after a flat July, according to the Credit Suisse/Tremont Hedge Fund Index, with some high-profile funds recording double-digit losses.
The industry has already seen acquisitions by more traditional firms -- for instance, last year Schroders announced it was buying fund of hedge funds firm NewFinance Capital -- and Brady said the motivation behind such deals is primarily investment talent.
The Hedge Fund space is a big boys game. I wouldn't bother unless you can use another's balance sheet and launch with at least USD2billion.
Thousands of home-buyers on fixed-rate mortgages face a crippling 'payment shock' as a result of the global credit crunch, it was claimed last night. Some could find their monthly repayments surge by up to 60%, bringing the threat of debt and repossession. More than two million homeowners are expected to come off relatively cheap fixed-rate deals in the next 18 months.
Many banks have tightened their lending rules as a result of the credit crisis which began in America's so-called sub-prime mortgage market and spread to hit the Northern Rock bank earlier this month.
Everyone coming off a fixed rate in the coming months is likely to find themselves paying more, even if they are able to secure a new fixed-rate deal.
But those who have a County Court Judgement over an unpaid debt or a black mark on their credit record, perhaps because they fell behind with a mobile phone bill, will be in particular danger.
Some will be forced to switch to their lender's standard variable rate, which is likely to be two-and-a-half percentage points higher than they are currently paying. Others will be moved to deals specifically for those with a patchy credit history, which can charge extortionate interest rates
Nice. Not that anyone seems to care. I also read that retired people are going bankrupt (see below) so that they can live off state benefits. Is this what we should all set our goals on? Leverage up and spend like crazy and hope we die before we get old?
Repeatedly French President Nicolas Sarkozy has disturbed the peace of the European Central Bank yapping that inflationary pressures %u201cno longer existd and the soaring euro is bad for European growth. It looks like barking Sarko was both wrong and right. Inflation has risen vindicating the ECB%u2019s hawkishness. But growth seems to be slowing. That's a stagflationary combination which will trouble the ECB a good deal more than Sarkos bark.
Yesterday, I mentioned the curiously detached-from-reality perspective of investors in regard to the poor results from Citigroup, among others. People somehow got the impression -- no doubt encouraged by management -- that the news was some sort of one-off, throw-everything-in-the-kitchen-sink type of event, and that everything would be hunky-dorey next time around.
Leaving aside the question of what causes people to experience such levels of cognitive dissonance in the face of overwhelming facts to the contrary, it's possible the delusion may be even greater than first thought. In "First Brokers, Now Banks: More Fictitious Gains," Barry Ritholtz, my friend and must-read publisher of The Big Picture blog, elaborates further on the latest in a long series of scams that may give some stock investors what they crave most: fundamentals that are always positive or that can always be spun in a bullish fashion.
Yesterday's surprisingly bad news out of Citibank and then UBS sent us back to the research archives looking for information about the quality of Banks earnings.
As we noted last week, much of the Brokers' gains were fictitious.
It turned out that a decrease in the value of the B/D's own debt was offset with a phantom accounting entry. These are presented in the earnings as if they are actual gains, not accounting phantasms.
But don't think its just the big Brokers. The Banks are now getting in on the scam act:
"Now some banks may be set to similarly benefit from their own misfortune. Financial titans such as Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase & Co., which will report third-quarter results next month, all opted earlier this year to start applying market values to some of their own liabilities, according to the research service the Analyst's Accounting Observer.
This means they, too, might see a boost to profit from declines in the value of their debts during the summer credit crunch. "It might not be unusual at all to be seeing gains on debt issued hitting earnings in the third quarter," the Analyst's Accounting Observer said.
Officials at Citigroup, J.P. Morgan and Bank of America declined to comment.
The brokers and banks are doing nothing wrong or improper in booking such gains. The accounting rules as they stand allow the practice. But some investors are crying foul, saying the rules shouldn't have been changed to allow for such gains . . ."
So much for gains in earnings quality . . .
Are Mr Panzer and I the only sane people left on this planet?
One of the persistent education trends in recent years has been the ratcheting up of graduation standards in high schools. The end of social promotion, piling on language, science and math requirements and stacking standardized tests on top of standardized tests.
Part of this is a natural reaction to the realization that our teachers have simply not been doing a good job teaching students. Since we can't trust the word of teachers that students are learning the right thing, we set up objective tests.
But have we gone too far? In our generous and egalitarian urge to make every child above average, we now require a very high level of performance for students graduating from high school in many areas of the country. In California, for instance, graduating students are now required to take Algebra I, Geometry, and Algebra II. Now understanding these subjects is probably the minimum requirement for many jobs in our new economy, it's not clear that every student in, say, Los Angeles—where only 10% score above 500 on the math portion of their SAT—is really capable of passing the requirements.
Thanks for the late lunch yesterday. Nice venue ...
A federal appeals court in Boston on Monday overturned a sentence given to a hedge fund manager convicted of insider trading, agreeing with prosecutors that 36 months of probation was “unreasonably lenient.”
The executive, Michael Tom, 38, of Waltham, was sentenced in 2006 after pleading guilty to illegally making more than $750,000 in insider trading profits. Prosecutors said a Citizens Financial Group employee allegedly tipped Tom in 2004 to the company's plans to acquire Charter One Financial.
Mr. Tom, who managed and partly owned a Burlington-based hedge fund called the GTC Growth Fund, then traded aggressively in Charter One securities, making 52 purchases of common stock and call options contracts, prosecutors said. He made the trades in his own name, as well as on behalf of the GTC Growth Fund and his relatives, authorities said.
I wonder what sort of insider dealing goes on in prison?
The Bank of England's liquidity sale drew no bidders for the second week running yesterday, helping to fuel a rally in bank shares. But industry sources warned the lack of take-up could mask continuing funding strains for some smaller lenders, while larger British banks have already taken advantage of cheaper facilities on offer from the European Central Bank.
Britain's central bank offered £10bn of three-month funding at a penalty rate of at least 6.75 per cent in the second of four auctions. It said it planned to press ahead with the rest on the same terms.
Time for the UK to join the Euro and for me to leave the UK. I did visit an immigration official yesterday who for a large sum of money could give me a green card - but then I visited these people who said it was unlikely I could in. However did tell me to change my name so it was more Mexican sounding...
Morgan Stanley Announces Restructuring of Mortgage Business
This restructuring will result in a net reduction-in-force of approximately 500 employees in the United States and approximately 100 employees in Europe including 90 from Morgan Stanley's UK mortgage subsidiary, Advantage.
"Morgan Stanley remains committed to building the leading vertically-integrated mortgage business and growing our Saxon Capital servicing operations despite the cyclical downturn in the mortgage markets. The consolidation of our mortgage businesses will result in increased efficiencies and superior service for our clients. It will also best position the Firm for growth when opportunities present themselves in the future," said Tony Tufariello, Managing Director and Global Head of Securitized Products.
Morgan Stanley presently operates three stand-alone mortgage businesses in the U.S. - Saxon Capital, a servicer, special servicer and wholesale originator of subprime loans; Morgan Stanley Credit Corp, a retail originator of prime loans; and Morgan Stanley Mortgage Capital Holdings, an aggregator of loans purchased from correspondent lenders. The consolidated platform will be a fully integrated mortgage company comprised of four centrally managed business channels: servicing, conduit, wholesale and retail. It will originate, purchase and service a broad spectrum of products through each business channel.
Nice spin and as expected.
Credit Suisse, AlphaSimplex Offers First 130/30 Index
“While the Investable index will represent a liquid tradable instrument, the Look-Ahead index will indicate the maximum potential alpha available to these types of strategies for a given set of constraints," said Pankaj Patel, director of quantitative research at CS.
The indices will be computed on a daily basis, and the calculation methodology will be transparent and replicable. Both firms will offer synthetic exposures and customized products related to the investable indices to their respective institutional and other clients. The 130/30 Index family will be managed by an index committee chaired by Andrew Lo, chairman and chief scientific officer of AlphaSimplex, and Patel, vice chairman....
A new index that permanently goes down? Must be a lot of demand for that. I'll get someone to write a structured product on it so I can go short.
HSBC Alternative Investments has named Nigel Webber, currently chief investment officer of HSBC Private Bank, its new CEO.
Webber will remain CIO of the private banking group. He succeeds Barbara Rupf Bee, who was appointed CEO of HSBC Investments.
HSBC Alternative Investments is the research and fund of funds group of HSBC. “HAIL will continue to invest in the growth of the business with the goal of substantially increasing assets under management over the next three year,” Webber said...
The ABX indices, which measure the risk of owning bonds backed by mortgages, have reversed their strong gains in August during the past month, indicating sentiment continues to deteriorate.
Last week's remittance data, which shows late payment and delinquency rates on mortgage loans, also worsened last month. All delinquency buckets, including borrowers that are 30 and 60 days late and properties that have been taken back by lenders, registered increases in September.
Thomas Zimmerman, head of asset-backed securities research at UBS in New York, said: “Pre-payments will slow further due to the shutdown of the market. On the other hand, large numbers of loans are expected to reset as late 2005 originations reach 24 months.
Basis Capital Allows Withdrawals From its Largest Hedge Fund
Australia's Basis Capital Fund Management Ltd. said it will allow investors to withdraw money from its largest hedge fund after suspending redemptions in July amid the crisis in credit markets.
Basis Capital will accept redemption requests on its Pac- Rim Opportunity Fund, it said in a letter to investors dated yesterday. The fund, which had more than A$570 million ($504 million) in assets as recently as March, lost 27 percent in June.
Basis is also seeking investor approval to split the Pac- Rim fund in an attempt to attract new investors and save the company from closure. It aims to separate the fund's structured credit investments from the Asian high-yield assets to form two new funds, the firm said in a Sept. 28 investor notice....
Slowly does it.
Bernanke Spoke With Rubin as Credit Crisis Worsened
The Federal Reserve's Aug. 7 decision to keep interest rates unchanged set off a chain of high-level discussions with Wall Street executives, money managers and cabinet officials that culminated in Chairman Ben S. Bernanke's public about-face 10 days later, according to records of his schedule.
Starting with a phone call from former Treasury Secretary Robert Rubin the day after the August rate meeting, Bernanke's appointments included Lewis Ranieri, founder of Hyperion Capital Management Inc., and Raymond Dalio, president of Bridgewater Associates....
Now I would like the SEC to have a look at Hyperion and Bridgewater trading patterns just before the announcement.
Renaissance's Bouchentouf Says Hedge Funds Will Own More Assets
Amine Bouchentouf, president of Renaissance Investment Advisors, comments on the outlook for commodity hedge funds. He spoke in an interview in London today.
``We expect to see the number of commodity hedge funds owning infrastructure to double from about 10 in the next two years. There is a growing shift to own assets to gain an insight into what is moving the markets that they trade in.
``I expect commodity hedge funds to return on average 10 to 12 percent this year, while the top funds will be generating annual returns of 15 to 18 percent.''
SOMETIME in the next 12 to 18 months, there is going to be a panic in credit markets,” Andy Redleaf, a 50-year-old hedge fund manager, wrote to investors in December. “The driver in the credit market panic of 2007 or 2008 will be a sudden, profound and pervasive loss of faith in the alchemy of structured finance as currently practiced.”
That prediction came true, and earlier than Mr. Redleaf anticipated. The structured finance market collapsed in August, as investors fled complex financial instruments, many derived from subprime mortgages, which were defaulting at alarming rates — or alarming to some.
Whitebox Advisors, Mr. Redleaf's family of hedge funds, was not the only one to bet against subprime. But it did so with searing and amusing insight, a trademark of the founder and the firm.
Haven't we all said this? But did he retire on his fortune telling?
The number of pensioners going bankrupt has more than doubled in the past five years as they take out loans they cannot handle.
More than 113,000 Britons were declared insolvent in the 12 months up to June
A man looking at bills Find out if your debts are a problem. Take our 12-step debt test (average score 8). Rising household bills, costly home improvements and gifts and loans to their offspring are being blamed for the debt crisis facing the over-65s....
Given inheritance tax is so high, no wonder.
Should the US Switch from the Dollar to Monopoly Money?
Recommendation: Not only would the switch to monopoly provide the US with a more stable currency, but it would also grant the Fed even further control over the economy by enabling them to set the “house rules.” By determining the “Free Parking Rules” and financial outcomes from such events as “rolling snake eyes” and “landing directly on Go”, the Fed could steer the economy with even greater precision. Too little liquidity? Just tell the “banker” to actually become a bank and provide loans rather than solely acting as a cash register. More research is needed, but there seem to be real and compelling reasons for the US to switch to the Monopoly currency....
It is already monopoly money. And another thing, the only American voices in the shops in New York are the sales assistants. The shoppers are all European and Canadian.
Are they nuts? The State of California's Algebra I standard
In Robert Heinlein's sci-fi novels, one of the recurrent features (besides nudism) is that the hero is typically a math prodigy. I was reminded of this when reading that the State of California, like most states in recent decades, has put a lot of effort into coming up with "academic content" standards to delineate precisely what each public school student will learn. In fact, teachers are supposed to write the Standards on the classroom whiteboards so that the students can make sure that the teachers aren't slacking off and leaving out anything that is officially mandated.
Unfortunately, the mathematicians who made up the California Mathematics Content Standards seemed to assume that the young people of California are characters from Heinlein novels...
8 comments
douibter said ...
if you are in New York then tell me how the taxi strike is coming along?
03 Oct 07 - 13:15 gmt
anonymous said ...
No strike yet. I am in the Hyatt after being booked into the Marriot Times Sq. My PA likes to surprise me. Looks like this maybe her last joke on me.
03 Oct 07 - 13:18 gmt
curiousGeorge said ...
What happened to your prediction of "the Big One" later this month?
03 Oct 07 - 13:34 gmt
fintag said ...
Website glitch
03 Oct 07 - 13:49 gmt
RiskMan said ...
I think Fintag said October 17th was the date. Only two weeks left!
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European banks haven't been quite so lucky, as some of the biggest names in continental finance have been laid low on U.S. subprime debt. In March, Natixis, a large French bank, said it had $1.4 billion in exposure to the U.S. subprime market, having extended credit to failed subprime lender New Century Financial. In July, IKB, a German business lender, came a cropper on bad subprime bets, precipitating a bailout. In August, state-owned SachsenLB, having made similarly ill-timed investments in U.S. subprime mortgages, bailed out and then sold at a knockdown price. On Monday, Swiss giant UBS, a far larger and more sophisticated operation, said that problems, "mainly related to deteriorating conditions in the US sub prime residential mortgage market," would force it to take a charge of about $3.4 billion and cause the company to suffer its first quarterly loss in nine years. Executives' heads rolled....