28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 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
Whilst America gives thanks that it can have a break from its crashing currency, the rest of the world waits with baited breath until next Monday when, if my crystal ball is telling the truth, my October 17th crash continues with a vengeance. We also predicted oil would be at 103USD a barrel by the end of the month and the 100 barrier is just about being breached. The UK buy to let market is officially dead and auction houses tell us they are being inundated with fire sale property. The gloom continues as the inventors of football show the world how far it has come by not featuring in Euro 2008. And who is to blame? Foreign players and Sky / Fox. We note with interest that Manchester United, owned partially by hedge funds, but mostly by banks, is struggling to refinance and the supporters are facing massive gate price hikes. When football supporters stop turning up to watch, you know the economy is in trouble.
But enough of this.
Fund of Hedge Funds, a dying business model are not quite dead yet. Pirates set the rules and we all laugh. Bear Stearns employees are unemployable. A new 3 step plan to run Investment Banks is revealed. Blackrock gets the golden M-LEC egg. The inter bank mortgage market is officially dead.
Funds of hedge funds (FoHF) rated by Standard & Poor's Fund Services made money in the third quarter despite concern in the markets over the ongoing credit crunch. Research just published shows that in aggregate the S&P rated FoHF returned around 1%, outpacing hedge funds which lost an estimated 1-1.5%.
“After a strong first half, the nine months to end September are now comfortably in double digits and October was another good month,” said S&P Fund Services lead analyst Randal Goldsmith.
“One feature that has been working well for rated funds has been the selection of hedge fund managers who have made money on their short positions,” said Goldsmith, citing the example of Turnstone European fund, where the largest position is in the Lansdowne UK Equity fund. This made about 10% in the difficult conditions of August, after shorting the shares of house-builders and financials, including Northern Rock. Jupiter Merlin Absolute Return fund also benefited from a significant holding in Lansdowne Global Financials fund, which did even better, returning 11% in August.
“It is reassuring that investors remained confident during a period in which bad news flowed like water from an open tap,” said Goldsmith. “However, a fly in the ointment is that almost all of the net inflows have ended up in one segment: emerging markets/Asia focused strategies.”
A side effect of the turmoil in the financial markets has been increased insistence on transparency from many FoHF. Goldsmith highlighted Cedar Fund, where a senior manager summed up the views of many, saying: “If a (hedge fund) manager is not being open with its investors during a difficult time that is unacceptable because, at the end of the day, it is our investors' money.”
Looking ahead, S&P rated funds of hedge fund managers are fairly unanimous in their enthusiasm for emerging markets and Asia. ...
Fintag says Hedge Funds as an asset class are a flight to safety. As they should be because they are hedged. Long live hedge funds and goodbye mutual funds.
Bear Stearns Cos. will pay Warren Spector -- the embattled former executive who oversaw two hedge funds that imploded this summer -- more than $23 million when he leaves the company in December, the investment bank said Wednesday. Spector (Brussels: SPEC.BR - news) , who led Bear Stearns (NYSE: BSC - news) ' asset management division, resigned in August as the company's co-president and co-chief operating officer. He had spent his entire career at Bear Stearns since joining the firm as a trader in 1983 and had been considered a likely successor to Chairman and Chief Executive James Cayne.
The resignation followed the collapse of two hedge funds the division established to bet on risky mortgage debt.
These hedge funds' bankruptcies helped detonate the drainage of liquidity and sell-off of mortgage debt that have straitjacketed financial markets this year.
Many of the stock options and other grants Spector would have had to wait to exercise will instead become available to him on his last day. The value of the grants is around $23 million based on Bear Stearns' current stock price, the company said in a filing with the Securities and Exchange Commission.
Spector will also collect a retiree treatment of $207,761. Spector no longer serves as co-president, but remains a managing director until Dec. 28.
Under his severance agreement, Spector will not 'disparage or encourage or induce others to disparage' Bear Stearns for at least a year after leaving.
Bear Stearns single-handedly triggered a decline of more than 2 percent in the entire stock market in a single day this summer when, attempting to soothe investors, executives in a conference call likened the mortgage shakeout to the bond market crisis of the late 1990s and the stock market crash of 1987.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Fintag says Now that is a nice Christmas present. Incompetence really does pay.
OECD warns of $300bn sub-prime losses; Alliance & Leicester shares sink to seven-year low
Global stock markets suffered another day of steep falls on fears over the severity of the credit crisis - and the turbulence could be just the start of a much more protracted downturn, the Organisation for Economic Co-operation and Development warned.
With the price of oil flirting yesterday with the once-unimaginable level of $100 a barrel, investors fled equities for government bonds that might better weather any economic storm.
The FTSE 100 ended down 155.6 points - 2.5 per cent - at 6,070.9, after falls overnight on Asian stock markets. The Japanese market fell 2.5 per cent to its worst level since July 2006 and the selling continued through yesterday in the US, with the Dow Jones Industrial Average accelerating lower in the final hour of trading to close at 12,799.04, down 211.1.
Financial losses from the collapse of the US mortgage market could hit $300bn, the OECD said in its latest report, and it predicted that there could be additional negative consequences that will only come in waves. After years of free-and-easy lending, financial firms are making it harder and costlier to borrow money.
The organisation said: "As adjustments have often occurred in waves, and as higher funding costs take typically several months to have their full impact on companies or consumers, it may well be that the recent correction is only a precursor of a more protracted downturn."
Adding to the concerns of economists and investors yesterday was the high price of oil, which had set a new record of $99.29 per barrel of light sweet crude in early morning trading. It later slipped to $97.36, despite an unexpectedly sharp fall in US oil stockpiles, but investors continued to fear that persistently high petrol prices will eventually dampen consumer spending. The price of oil has risen by roughly a half since January and, adjusting for inflation, it matches the previous price peak during the Iranian hostage crisis of 1979-80. "The main reason behind the rise is the weak dollar against Asian currencies," said Rob Subbaraman, a strategist at Lehman Brothers. "We expect the weak dollar to continue for a fair bit, so this is not a short-term issue."
In both London and New York yesterday, financial stocks were the hardest hit, reflecting concerns about funding difficulties. Alliance & Leicester hit a seven-year low of 576p, while the buy-to-let lender Paragon plunged an additional 36 per cent as it began work on the emergency fundraising announced earlier in the week. Shares in Countrywide Financial, America's largest mortgage business, were down another 8 per cent.
Fintag says And people are surprised? The 1929 stock market crash took many years and despite the digital world we live in, the 2007 crash may also take years. We have been boring you about the debt-feat crisis for over 14 months and if I had been writing this blog pre this time it would have been for about 3 years.
Nobody listens, nobody cares except global macro managers who have seen this coming and are booming away. Not that one should celebrate such a market correction as it impacts us all, but we are all living in a world of fantasy.
As we said, oil will be USD103 by the end of the month. And it looks like another FiNTAG prediction comes true [Editor:What about your wild claims that the markets would crash in June?]
bloomberg says " Europe Suspends Mortgage Bond Trading Between Banks "
FORMER BEAR STEARNS REP. SETTLES INSIDER TRADING CHARGES
Chalk up another black mark for Bear Stearns. Andrew Srebnik, a former registered representative at the beleaguered firm, has settled charges brought against him for illegal insider trading.
According to the Securities and Exchange Commission, Srebnik was involved in an insider trading scheme that included employees of UBS Securities and Morgan Stanley. The scheme's point man was Mitchel Guttenberg, an executive director in the equity research department of UBS, who, from at least 2001 through 2006, allegedly gave material, nonpublic information concerning upcoming UBS analyst upgrades and downgrades to at least two Wall Street traders, Erik Franklin and David Tavdy. In exchange for the tips, he shared in the profits from their trading on that information.
Franklin allegedly traded on this insider information for a hedge fund he managed at Bear Stearns, dubbed Lyford Cay Capital, and in his personal accounts at the Wall Street firm.
Srebnik, who worked on a trading desk at Bear Stearns, had access to Franklin's trading information and used the UBS tips to purchase and sell securities in his personal account.
Without admitting or denying the allegations in the complaint, Srebnik has agreed to pay a disgorgement of $54,730 and a civil penalty of $23,178. He is also barred from association with any broker, dealer, or investment adviser.
Fintag says Bear Stearns boasts about its low staff turnover. Perhaps it is because its staff are unemployable elsewhere.
After the pain of writedowns comes the dilemma of how to keep the best staff and boost revenues next year
Incoming chief executives such as John Thain at Merrill Lynch or the new head of Citigroup will not have to face the ordeal of their predecessors in having to explain why they have lost so much money, but they face immediate significant challenges.
Nader Farahati, a director at consultancy Oliver Wyman, said: “Three pressing issues for investment banks are how to reward their best people, which growth bets are they going to take, and how they can control non-compensation costs, which have rocketed.”
Financial News has come up with a checklist of each issue as banks seek to negotiate the final weeks of their toughest year since 2001.
hree banks - Citigroup, JPMorgan Chase and Bank of America - have hired Blackrock Investments to run a $75 billion superfund. The superfund has been created to address the 2007 Banking Liquidity Crisis. The fund will provide liquidity to banks and hedge funds that bought collateralized debt obligations that have lost value thanks to the Subprime Mortgage Mess. The U.S. Treasury is backing the Superfund to ward off further economic decline.
What It Means to You The Superfund is a big vote of confidence by the government and the large banks. It means they will not let the banking crisis disable the U.S. economy. It is also a symptom of how serious they consider the crisis to be.
Of course, there are no guarantees that the fund will be enough to forestall a recession. However, it will probably give the banks enough time to figure out how to correctly value complicated CDO's, including Asset-backed Commercial Paper and Mortgage-Backed Securities. This, according to Federal Reserve Governor Randall Kroszner, is the primary issue that caused the crisis, and its resolution should restore the financial markets to sanity.
The rug has been pulled out from underneath Britain's buy-to-let mortgage boom, threatening a meltdown in the property market.
The country's third biggest buy-to-let lender, Paragon, yesterday revealed it has become the latest UK victim of the global credit crunch, after the collapse of Northern Rock.
The finance company said it has become impossible to borrow all the money it needs to sustain its business.
As a result, it plans to slash the number of buy-to-let mortgages it offers by 50% in 2008 - a lead which other lenders are expected to follow.
Concerns about the future of buy-to-let mortgages were fuelled by a separate announcement from Bradford & Bingley - the UK's biggest buy-to-let mortgage lender - that it has sold two commercial mortgage loan books.
A shortage of this type of home loan will suck buyers out of the housing market and so increase the likelihood of price falls in many regions.
The news provided evidence of how the global credit crunch that has brought Northern Rock to its knees also threatens UK consumers and the wider economy.
Many banks are simply unable to borrow money at reasonable interest rates.
As a result, many have withdrawn home loan deals while they are turning away up to 50% of applicants for credit cards and loans. City analysts were stunned by Paragon's news - with the result that its shares crashed almost 50% cent in early trading.
Paragon is particularly vulnerable to the credit crunch because, unlike banks and building societies, it has no savings customers.
This means it has to raise all the money it lends to individuals by borrowing on international markets.
Fintag says Most of my friends are renting in London - including a well known hedgie who lives in a hotel - and have no intention of buying UK property for at least 2 years. What ever the estate agents or banks tell you, the property market is collapsing. One of my favourite websites is propertysnake.co.uk that shows you what houses actually sell for. Why is it estate agents who stamp a "SOLD" sign across property always leave the price that it was selling at and not the real price that it sold for?
When there is a credit crucng, people need cash. To get cash they have to sell assets. It is that simple.
The launch yesterday of new rules for private equity funds failed to placate the industry's critics, with MPs and trades unions attacking a proposed code of conduct for lacking teeth.
The new rules, the product of a review of the private equity sector by Sir David Walker, the former Bank of England official, place much greater onus on private equity funds to provide more details of the financial performance of companies they take over.
Sir David's review was prompted by increasing criticism of the private equity industry, which critics have accused of a secretive, asset-stripping approach to management that has resulted in thousands of job cuts in recent years.
But John McFall, the chairman of the cross-party Treasury Select Committee, which is due to interview Sir David next month, said he was disappointed by the new rules, which he claimed had been watered down following complaints from individual private equity firms.
The new rules will require private equity companies to publish accounts for the larger companies they own no later than six months after financial year-ends.
However, Sir David originally suggested a four-month deadline and has also dropped proposals to force individual private equity firms to detail what profits they make from financial engineering. Mr McFall said: "I want people in the industry to be alive to the public interest and ensure they're going more than half way to meet it."
The rules were also criticised by Brendan Barber, general secretary of the TUC, who said improved disclosure was a smokescreen designed to head off criticisms of private equity firms' approach to cost-cutting, and of their tax breaks.
"The truth is that they have chosen this ground on which to make limited concessions," Mr Barber said.
Fintag says Lip service. What would you expect from a bunch of lying pirates?
Even smart contrarians are confused about our predicament
Paul B. Farrell, one of my favorite economics writers at MarketWatch, published 17 reasons America needs a recession today to make the case, "Yes, America needs a recession. Bernanke and Paulson won't admit it. And investors hate them. We're all trapped in outdated 1990s wishful thinking about a 'new economy' and 'perpetual growth.'"
While I appreciate the sentiment and have expressed similar views such as in Upside Down to Right Side Up, fact is the U.S. cannot have the kind of recession Farrell describes this time around because the antecedents preclude it. The problem is rooted in both the source of our current economic challenges and the political mandate to mitigate them that far predates the 1990s. The moral hazard of reflation became embedded in U.S. economic policy after The Great Depression; the mandate became "No more Great Depressions."
The Fed, Treasury, and Congress have been fighting the recession we forecast last fall as due to start in Q4 2007, led by the housing market correction. Throwing the dollar under the bus to briefly boost exports and bring plane loads of tourists into the U.S. has helped avert a far more blatant recession from occurring than the subtle one we're already in. With inflation rising as quickly as the U.S. economy is slowing, picking the exact month or quarter when the real (inflation-adjusted) GDP growth recession starts–or started–will not be possible until after the inevitably revised GDP and inflation figures come in. We expect to see confirmation June 2008 at the earliest.
As for an economic contraction that "cleanses the system" with debt defaults, bankruptcies, and high unemployment–well, that's coming, too. Sort of. But it won't lead to the hoped for economic and political structural reforms outlined in Farrell's romanticized vision of recession.
1. Purge the excesses of the housing boom No, it's not heartless. Not like wartime calculations of "acceptable collateral damage." Yes, The Economist admits "the economic and social costs of recession are painful: unemployment, lower wages and profits, and bankruptcy." But we can't reverse Greenspan's excessive rate cuts that created the housing/credit crisis. It'll be painful for everyone, especially millions of unlucky, mislead homeowners who must bear the brunt of Wall Street's greed and Washington's policy failures....
Fintag says Please read this as it is very comprehensive in a sort of Hello! style.
Hedge funds are not to blame for this summer's credit crisis, and have dealt with it more effectively than other financial institutions, two top British regulators have said.
Hector Sants, the CEO of the Financial Services Authority, told a conference in London that “hedge funds were not the catalysts or drivers of this summer's events.” And John Gieve, deputy governor of the Bank of England in charge of financial stability, noted that “hedge funds have not been blown away by the first signs of real market stress, as some commentators thought they would be.”
Gieve said that the fact that hedge funds have become less prominent in the credit crisis, while Wall Street giants and other banks, including Britain's Northern Rock, have taken center stage, shows that they have been able to adjust to the circumstances.
For his part, Sants suggested that hedge funds should reconsider their models and improve stress-testing, as well as investigate how to improve counterparty risks, in light of this summer's situation. But he warns that the FSA will take the opportunity to probe illicit activity.
“Recent instability provides the ideal environment for rumors to be spread and for market abuse,” Sants said. “The reduction of market abuse remains a focus of the FSA.”
Fintag says What is wrong with these people? It was the Hedge Funds who kept the markets liquid while everyone else panicked like crazy. Without us, the markets would be even more volatile.
3 comments
Finbar said ...
Derivatives Grow at Fastest Pace in Nine Years to USD516 Trillion - bloomberg Interest Rate Derivatives - 349 trillion 79% are single currency swaps
oooofff!
22 Nov 07 - 10:59 gmt
anonymous said ...
Rumours are starting to circulate that the total UBS write down over the next year may be as much as $13bn.
Ouch
22 Nov 07 - 13:47 gmt
anonymous said ...
I work for a top city recruitment firm and we are being inundated with cvs. The banks are laying off hundreds of people but not telling the markets. Problem is we cannot place them.
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