28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
Sorry about the delay but a Cyclist went through my window.
Whilst New York taxis bemoan the GPS tracking their every move, as a tourist it is great sitting in the back of car designed for 4 foot high people and porous back sides, being able to watch the inbuilt sat nav with advert breaks every time we venture into the not so nice parts of Queens (great for burglars of course), Londoners have to face a barrage of unprotected human beings on 2 wheel vehicles ridden by blinkered lunatics.
I ride a bike, but its in the gym and it doesn't crash into Bentley Convertibles.
The volume-lite markets continue their drug induced skyward ascents whilst big banks are hassled. Did they lie a lot or has the truth all come out. Is Merrill Lynch the new Lehman? Is Bank of America the new Wachovia? Well we will never really know until early next year. In the meantime, big consumers will not be consuming this Christmukkah because they will be out of work and the sales of luxury items will fall. Why do the markets ignore what is going on? Is it the cancelled at the last minute limit orders? Whatever it is, my credibility is currently negative. Where is the great 17th October crash? Where is it you might ask.
One of the great advantages of running Hedge Funds is the lack of politics. We have a trading floor mentality where political correctness is thrown out of the window but at least people tell it as it is. We cannot afford to pay off our middle office staff to fair value our portfolios as we have third party administrators who do that. They get their prices from Superderivatives and use proper accounting systems. As principals we are judged every month unlike your mega bank that is judged once a quarter.
And people say hedge funds are not transparent? Let us bring in monthly bank reporting - they wouldn't and couldn't. Given the quarterly earnings statements are unaudited, we have to take Goldman, Bank of America, Lehman results with a pinch of salt until the year end.
Anyway, the weekend is coming early (although for my cyclist friend he will be in the Chelsea & Westminster wishing his weekend was pain free) and it is time to gather my thoughts once more and ponder the real purpose of living. Giving. Blood that is.
Hedge funds are well represented in the news and interestingly Pirate Equity news is very quiet indeed. I wonder if the principals are all looking at how to escape before the tax man cometh? As we reported yesterday, the US is in desperate need of revenue and Clinton et al want to "redistribute wealth" and turn the US into France.
A tax bill called by its author the “mother of all reforms” would seriously curb the alternative investments industry's allowance.
Rep. Charles Rangel (D-N.Y.) unveiled a tax overhaul that would protect individual taxpayers from the alternative minimum tax and significantly cut corporate taxes, but would increase the tax burden on hedge funds and private equity firms by almost $50 billion.
Under the House Ways and Means Committee chairman's proposal, introduced today, the carried-interest tax rate, under so much fire recently, would be more than doubled, from 15% to 35%. That tax hike would raise about $25.7 billion over 10 years. Rangel's bill would also impose taxes on offshore deferred compensation, used by many hedge fund managers to shield their assets, to raise another $22.7 billion. The new revenues would offset those lost by the corporate tax cut—the top corporate marginal tax rate would fall from 35% to 30.5%—and the repeal of the alternative minimum tax, which imposes a surcharge on wealthier households.
Rangel's measure also includes provisions on Social Security and Medicare taxes, securities sales and the child tax credit.
“We are not raising taxes. We are restructuring the rate of taxes so that at the end of the day 90 million taxpayers will walk away saying, 'I've got a decrease in taxes,'” Rangel said. “Do people think a system is fair when you find people making hundreds of millions of dollars paying taxes at a lower rate than the secretaries and the janitors and the common laborers?”
The proposal quickly came under fire from top Republicans. Rep. Jim McCrery (R-La.), the ranking member on Rangel's committee, said that he “can't support the bill,” which Treasury Secretary Henry Paulson said “would dramatically raise taxes in ways that in my judgment would hinder America's ability to compete in the global economy.” Some Republicans called Rangel's bill “the mother of all tax hikes,” saying it would raise taxes by $1 trillion over 10 years.
The leading candidates for the Republican presidential nomination also laid into Rangel's proposal—though neither mentioned the corporate tax cut or the AMT repeal. In fact, the frontrunner, former New York City Mayor Rudolph Giuliani, who said the bill would be “devastating,” seems to think the proposal would raise corporate taxes.
Fintag says Being poor is easy. Creating wealth is very hard.
Nothing breeds disharmony in the European government bond market like the mention of greater harmonization. It is a subject about which few bankers, borrowers or investors sing in tune.
Some argue the eurozone sovereign debt market is a shining example of the success of Europe's single currency - liquid, innovative and efficient.
Top sovereign syndicated bonds, 2007
The head of a European government debt management office said: “I don't believe in harmonization.” Others concede the market has shortcomings but suggest they tend to create opportunities as well as problems. Then there are those who claim the market remains complicated and plagued by inefficiencies which only greater harmonization will cure. Ultimately, they argue, this could result in joint borrowing by several eurozone countries.
While the euro swept away a dozen different currencies, it did not remove differences in how individual states raise debt. For Godfried De Vidts, head of European affairs at interdealer broker Icap, the problems with the market structure are self-evident. He said: “The European government bond market has in the past suffered from too many issuers, too many maturities, and too many people not talking to each other.” Moves are afoot to try and remedy this situation.
Inevitably there is a political dimension to the debate that cannot be resolved by market participants. For example, joint borrowing by eurozone states would only be likely to occur against a backdrop of greater fiscal, economic and political co-operation.
Benoît Coeuré, chief executive of Agence France Trésor, the French debt management office, said: “We operate in a given constitutional framework in Europe that is different from the US. The Maastricht Treaty says that member states should retain separate fiscal policies. If the treaty was different, then the bond market might be different, but the way the market is organized is a function of Maastricht and, although I would personally favor it, I have seen no indication from the population of Europe that they would want it otherwise. Until that is the case, there will be no single treasury for Europe and no unified issuance.”
But that does not mean each eurozone state should take a different approach to issuing debt. Greater harmonization of the technical aspects of the market could bring benefits for all, according to some market participants.
A paper published this year by Matthieu Louanges, executive vice-president at fixed income manager Pimco in Munich, brought an investor's perspective to the debate. It highlighted the fact that unnecessary differences in auction procedures, and clearing and settlement between various eurozone borrowers created costly obstacles to the smooth running of the market.
Louanges also said a lack of co-ordination over issuance between debt managers frequently created peaks and troughs of supply. This is particularly true of the 30-year segment of the market. A third of total issuance by eurozone sovereigns in the 12 months to May 8 occurred in the first 45 days of 2007.
Fintag says Rip them up and start again? That is why us Hedgies are winning the battle. We move quickly. Take property derivatives? The bansk have been slow to do anything but the Hedgies are ready to do battle.
Quick and nimble as a cyclist.
PROPERTY DERIVATIVES POINT WAY IN WAKE OF CREDIT SQUEEZE
As banks and hedge funds increasingly seek new ways to shore up balance sheets in the wake of the credit squeeze, property derivatives have emerged as a lucrative way of bolstering returns.
In the UK, which has the most developed market in the world, commercial property derivatives are expected to see volumes rise to £8.5bn - a 20 per cent jump since June - when new figures are published next week.
Michael Levi, head of property derivatives at CBRE-GFI, a joint venture between broker GFI and property group CB Richard Ellis, which is now a leading broker in property derivatives, said: "People are using property derivatives very effectively now. Despite the credit crisis, we have seen a lot more participants in the past few months.
"The banks are increasingly active. Hedge funds are starting to get involved too. Users see it as a good way to get exposure in a market that has a very cumbersome underlying product."
Property derivatives enable banks and funds to bet on the price movements of commercial property without having to buy the actual bricks and mortar.
The contracts tend to be swaps, with one party betting that property returns will outperform a set benchmark, such as the London Interbank Offered Rate (Libor), while the other bets that it will not.
The products may attract even more interest in light of the Bank of England's warning this week that the commercial property sector was "particularly prone to further shocks".
The reason the UK has been successful in developing the market is down to the quality of the data used for trading from the Investment Property Databank.
In the US, which has seen worthwhile volumes only since March, the market is growing fast, with an estimated $500m in trades compared with a meagre $50m at the start of the year. France and Germany have also seen the first trades in these derivatives this year.
In the UK and the US, the turn in the underlying market has encouraged growth. The UK saw the first fall in total returns for 15 years in September while in the US growth has slowed from the peaks of last year.
Fintag says Did you know that IPD is a large spreadsheet of unaudited real estate valuations?
And people want to write derivatives on the back of an underlying that is just a spreadsheet populated by estate agents?
Well I never.
At least with CDO's and ABS's there is something at the bottom that is providing prices however large the spreads. IPD has a monopoly and is completely opaque. Just ripe for abuse and corruption then?
Property derivatives - I wouldn't touch them with a barge pole. Look what happen to Orn Capital?
The WSJ's Sarah Lueck seems to say today that the idea of taxing carried interest - forcing private-equity honchos and hedge-fund managers to pay income tax on their income - is back. Two new taxes targeted at hedge-fund managers are being proposed by Charlie Rangel, one on the income-tax front and the other on the offshore-income front. But Edmund Andrews, in the NYT, covers the Rangel proposal as basically an idea for the kind of tax code a future Democratic White House might be interested in implementing, rather than as a real attempt to change the tax code this year.
So my feeling is that hedge-fund managers are going to be able to sleep well at night through all of next year, and that Rangel's proposals have more to do with the ongoing presidential election campaign than they do with changing the taxes we all will pay on our 2008 income. But I may be confusing a narrow proposal on the carried-interest front with a much broader proposal on fiscal policy more generally. Will it be possible for Congress to go ahead and tax hedge-fund managers more, perhaps in an attempt to offset the costs of defraying the alternative minimum tax, while putting to one side the rest of Rangel's proposals? And how much power does Chuck Schumer have to prevent that from happening?
Fintag says The little heard about world of carried interest. This is what pirate equity principals live off. It is neither capital or income and they pay virtually no tax on it. Well it is about time they did. [Editor: Welcome comrade Finbar]
Recent events have raised a number of questions about the role of rating agencies in the financial system, in particular in evaluating structured credit products.
Agencies could publish the expected loss distributions of structured products, to illustrate the tail risks around them.Agencies have made significant efforts over the past few years to increase the transparency of their rating methodology for structured finance products, through publication of research reports describing their modelling methodology and their assumptions on correlations and recovery rates. But published distributions could provide a visual reminder of the fatter tails embedded in the loss distribution in structured products.
Agencies could provide a summary of the information provided by originators of structured products. Information on the extent of originators' and arrangers' retained economic interest in a product's performance could also be included. Such a summary may satisfy investors that incentives are well aligned or encourage investors to perform more thorough risk assessments.
Agencies could produce explicit probability ranges for their scores on probability of default. Probability ranges would provide a measure of the uncertainty surrounding their ratings. Although such figures are already available retrospectively as transition matrices, an explicit probability range would allow investors to monitor agencies' performance when rating different asset classes.
Agencies could adopt the same scoring definitions.Currently, some use probability of default, some loss given default and others a combination. Converging on a single measure would reduce the risk of misinterpretation by investors.
Fintag says Or rating agencies could be scrapped completely?
Bank of America (BofA) CEO Ken Lewis told analysts on a conference call last week that he had had just about as much fun as he could stand in investment banking at the moment, after investment banking write-downs led to a 93% decline in unit earnings to just $100m in the third-quarter. Well, several staff who work in the investment bank won't be having much fun themselves soon - BofA has just announced 3,000 job cuts, and the majority will come from the investment banking division.
Lewis confirmed Wednesday that 3,000 heads are to be chopped, saying that 'while some of these changes are a direct result of our under performance, others have been contemplated for a number of months as we looked at how we could operate more effectively'. BofA's boss said last week that there would be now a strategic review of the investment banking business, and that the results would be known before the year-end. He told analysts that 'you (simply) can't have a business where you make money for five years, and then give it all back in one year'.
Fintag says And will Ken Lewis be sacking (ooooer missus) himself?
Investors are being unsuspectingly exposed to long-bias portfolios or high-beta strategies, according to the managers at Cartesian Capital, the Edinburgh-based investment boutique.
They believe many managers simply use index futures as the 'short' element of their portfolios and can consequently under-perform when markets come under pressure.
“Index shorts can be initiated quickly but end results may not be desirable,” said Andrew Kelly, lead manager of the Resolution Cartesian UK Equity Long/Short fund. “If the underlying long portfolio is mid-cap biased then shorting a large-cap index may not provide protection, as demonstrated in September when the UK mid-cap index fell 2.4% while the FTSE rose 2.6%. Stock picking shorts requires a higher degree of diligence but ultimately provides a better quality hedge and potentially a higher degree of reward.”
Fintag says What do you expect when the markets don't reflect the fundamentals? I am long only cash - especially the Yuan.
FEDERAL RESERVE STARTING HYPERINFLATIONARY BAILOUT OF BRITISH BANKS
On Oct. 12, the U.S. Federal Reserve Board of Governors agreed to extend Federal Reserve contingency lines of credit to two {British} banks--$10 billion to the Royal Bank of Scotland (RBS), and $20 billion to Barclays, two of Britain's Big 4 banks. The Federal Reserve would open these $30 billion facilities to the two banks, should the banks, in turn, need them to extend credit to their clients "in need of short-term liquidity to finance their holdings of securities and certain other assets," the Federal Reserve said in a letter to the banks.
With respect to the Royal Bank of Scotland, the Fed said that the coverable assets could include "residential and commercial mortgage loans and mortgage-backed securities, asset-backed securities, commercial paper and structured products." At the same time, the Fed lifted the limit on how much credit the RBS and Barclays could extend to their "affiliated broker-dealers," to $10 billion for RBS, and $20 billion for Barclays, matching the size of the contingency lines of credit that the Fed would extend to them. RBS' and Barclays' affiliated broker-dealers would be the vehicles, which would then extend the funds to the two banks' collapsing clients.
Thus, the U.S. Federal Reserve is preparing to extend a hyper-inflationary $30 billion to bail out the British banking system, and the Cayman Island- and London- headquartered hedge funds, which use the British financial system globally as a base of operations from which to destroy the banks of the United States. This would create a Weimar-style hyperinflation; the Fed's behavior approaches criminal.
Simultaneously, Barclays Bank is heavily involved with three deeply troubled SIVs, one of which, Solent, is headquartered in the Cayman Islands.
Thus, the Federal Reserve is openly caught desecrating the purpose of the U.S. banking system; it is creating hyperinflationary funds for multi-billion British speculative instruments which helped trigger the continuing global banking crisis.
Fintag says Don't get me wrong. American banks are the best in the world - I have worked for two of them in my time. European banks are shockingly awful - well I thought so. Anyway, I love to see the likes of Barclays being bailed out by the Fed. They have secured facilities from the Bank of England, ECB and my mother.
Globalisation. Great fun. So why can't I get a green card?
A former hedge fund manager is halfway home towards being cleared of insider-trading charges.
John Mangan, half of the now defunct Charlotte, N.C., hedge fund Mangan and McColl Partners, said that a federal judge had dismissed an alleged violation during a short-sale involving a private investment in public equity.
Mangan, who is now reportedly working in private securities trading, expressed optimism that Judge Graham Mullen of the U.S. District Court for the Western District of North Carolina would also dismiss the insider trading charges against him at a summary judgment hearing in March.
The Securities and Exchange Commission in December accused Mangan of making some $178,870 in ill-gotten profits in trading CompuDyne Corp. shares while working for Friedman Billings Ramsey in 2001. The agency said Mangan had shorted CompuDyne after learning of a planned PIPE, and that he also sold unregistered CompuDyne shares after the PIPE was announced....
Fintag says Good news.
LEHMAN RUMOUR, EXITS BECKON FOR BEAR & CITI BOSSES, UBS
Rumours were flying Wednesday that Lehman Brothers was to announce a $7bn write-down, prompting a drop in the firm's share price at one stage of over $4 a share. Lehman, however, quickly came out and denied the rumour that any write-down anouncement would be made. But someone, it seems, has made a killing on November puts. Speculation is mounting that this might all be a reserve pump and dump play.
The pressure is still on Citi CEO Chuck Prince, despite attention turning to the mess at Bank of America and Merrill Lynch over the past few days. A third-quarter earnings fall of some 57%, the worst-performing stock in the Dow Jones industrials this year and fears that Citi might have to make a further round of write-downs, means Prince remains very vulnerable.
CNBC reports that investors are also getting 'jittery' about the future of Bear Stearns. Some are said to be to concerned that the 6% stake Citic Secutities has taken in the firm isn't enough (they wanted a bigger investment to beef up the firm's capital base). Others, it seems, are worried that CEO Jim Cayne's current health problems could distract him at a time that the firm remain vulnerable. Some say that Jimmy, 74, should do the honourable thing and use his prostate problems as good reason to step down.
Fintag says The CEO club of 2007. So far they are all together. Maybe the shareholders are still stunned by what is going on and let us face it who would want to take over the reigns of a failing bank. Best to wait until Q2 2008 meez thinks.
American International Group Inc., the world's largest insurer, fell the most since August in New York trading on speculation the company may write down assets linked to subprime mortgages.
AIG spokesman Chris Winans said the company had no comment on the speculation or a report by Friedman, Billings, Ramsey & Co. estimating $9.8 billion in ``potential'' writedowns in units that originate, insure, and invest in home loans.
``Considering what we've seen at Bank of America, Merrill Lynch and Bear Stearns, it's certainly possible,'' said Marc Weinberger, head trader at W. Quillen Securities in New York. AIG fell $2.05, or 3.2 percent, to $61.79 in New York Stock Exchange composite trading at 4:15 p.m., after touching $58.46 earlier.
The writedowns would be ``manageable,'' reducing third-quarter profit by $1.00 a share, said Bijan Moazami, the Friedman, Billings analyst, in a research note today. Moazami estimates profit of $1.72 a share without the writedowns. AIG has $32.6 billion in subprime-related assets, compared with $828.8 billion in total investments as of June 30.
Fintag says I thought we were done with subprime?
5 comments
Working@MER But Not4MuchLonger said ...
Rumours are Merrills is lining up to fire 1500 in London next week.
26 Oct 07 - 10:41 gmt
ozgerbobble said ...
That number seems high but as they say never believe management................. in their own words "Merrill Lynch remains focused on paying its best performing employees competitively. In the same vein, it may be necessary to accrue compensation expense at a higher level in the fourth quarter to ensure it can appropriately reward employees whose performance will drive future growth." Merrill Lynched more like
26 Oct 07 - 11:21 gmt
Finbar said ...
3M $Libor fixes are sub 5% - looks like pressure is off the fed. Markets rule again...
26 Oct 07 - 13:07 gmt
Yossarin said ...
Finbar you need a new crystal ball, Merrill's chief is said to have floated the idea to merge with Wachovia! Perhaps they will buy BS just before merging giving Wach a twofer but I doubt Stan has that kind of magic left in him.
26 Oct 07 - 14:48 gmt
Finbar said ...
oooof. Imagine that - Wachovia Lynch. Sounds nice. When two useless banks get together you create one almighty mess.
facebook
free daily e-mail
feed
