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
Little boys are being bitten by bears and they don't know what to do about it. Many of today's market participants have never seen a real crash or a nasty recession and it is no wonder that denial continues without recourse to the side notes of a 1929 wikipedia entry.
It was about 12 months ago that HSBC Household's subprime exposure was being commented on and 12 months later supprime is still having an impact. Market corrections take time and today's internet "I want it now" generation have not yet got to grips with the market being akin to large liner that can take months to recognise the signs of a leak and then months, if not years, trying to fix it. With Ben Bernanke as captain, the leaks have been found but they are the wrong ones. He is handing out life rafts but the passengers are not convinced they will float. [Editor: Lame] That is what I love about the markets. They are as irrational as ever and can never be tamed.
I flew from California to New York yesterday. The plane was empty; I turned left into First Class without a valid ticket (even I am on a cost cutting drive) and the stewardess just smiled. So here I am at the Four Seasons having been upgraded because I asked them too. The fitness room was empty. The bar was empty. The porters are tip dry. The streets are empty. It is like being in the film 28 Days Later except it is not London.
My HD TV finance channels are talking about a bottom. A tad premature meez thinks but do I care? Well from an alpha generating view, not at all. From seeing friends and family struggle to keep up with their lifestyles, yes I do care.
FiNTAG has kept a low profile recently but times are a changing. I have been asked to speak on Bloomberg TV as well as CNBC. Why? I have no idea. The answer was no of course, because unlike the Yanks who love fame and infamy, I am a reserved Brit who blushes when I am checked out by someone of the opposite sex.
For those new to the world of FiNTAG, I write this in 45 minutes. When I have finished, I go to the gym, then off to work and forget completely. I am sorry if you want more but being a journalist is good for the ego but bad for the wallet.
Enough about me. Today we look at how Hedge Funds are no longer the ogre of the forest, or the cause of HIV or devils in skirts, but financiers getting on with the job of keeping investors' risk reward profiles satisfied and keeping the markets liquid. We are the main source of revenue for many of the Incompetent Banks and provide employment to many a Prime Brokerage, Market Data and Serviced Office vendor.
In October I predicted Goldman are to be sued for subprime crimes. I understand this process starts today ...
Hank Paulson, US Treasury secretary, was chairing a lunch in New York this month with luminaries from investment banks, private equity firms and hedge funds to discuss regulation of the financial markets when Michael Novogratz interrupted.
The former Goldman Sachs trader who is now president of Fortress Investments, a hedge fund with $40bn (£20bn, €27bn) under management, pointed out that for years the assumption had been that hedge funds would bring financial disaster. Mr Novogratz went on to observe, according to one participant, that instead it was the banks that “blew up the world”.
The point was undeniable. Indeed, Morgan Stanley managed to lose more money on writedowns and a single trade gone wrong than Long Term Capital Management and Amaranth - the two most prominent hedge fund failures of recent years - combined. To be sure, hedge funds were also hard hit by the market upheavals of 2007. But most funds proved far better at risk management than the banks. They cut their losses more swiftly and ended the year with record profits in many cases.
Fintag says My job is done it appears. So what do I do next?
finalternatives says " Garden State Makes $6 Billion Alts Commitment "
Or maybe not: ftalphaville says " Quant angst may be different this time "
Shares across the world gyrated wildly again yesterday as fears of a recession in the American economy ebbed and flowed across the financial markets.
The slump in equity values started in Asia, where traders were unsettled by renewed fears of a recession in the United States. Japan's benchmark Nikkei index fell by 4.0 per cent, while the Hong Kong Hang Seng Index declined by more than 4 per cent, and Shanghai was down 7 per cent.
A growing belief that the Chinese economy could no longer be assumed to be "decoupled" from the US contributed to the unsettled atmosphere, as did some freakish weather in the region. Snow in south and central China, espec-ially in the industrial hub of Shanghai, disrupted power supplies, closed factories and halted air and road traffic.
Continuing their roller-coaster ride, shares in London reversed some of the gains made at the end of last week - the rally that followed Monday's six-year record fall in equities. A fall of a further 1.4 per cent in the FTSE 100 extends its losses this year to more than 11 per cent, and the volatility looks set to continue.
Tim Hughes, head of sales trading at IG Index, said: "All seems to be rattled again. Perhaps it's unsurprising, given the seemingly baseless rally towards the end of last week. We are not going to know for a few months whether recession is the next problem that we are going to be dealing with, or if the US fiscal stimulus package and aggressive interest rate slashing are going to be effective."
Fintag says The US is in recession. The fear is contagion. We thought it was different this time. China can go alone without the USA. This is not correct.
A normal boom and bust credit cycle is simply easy credit causing people to push up property price, in turn increasing the amount of credit, which creates a self-reinforcing cycle until the bubble bursts. This has happened many times throughout history, and when bubble bursts, people suffer a little but after some time, things come back.
But things has changed a lot during last 10-20 years. In order to prevent recession and eliminate credit bust period, the Fed and government have intervened repeatedly whenever financial market is at risk. They have flooded the market with easy credit by providing large liquidity and lowering short term interest rate. As a result, they have prolonged the bull market and credit boom period as long as they can to keep people happy.
As someone said it well "treating a drunk by giving him another drink." Whether people will have to pay for this kind of temporary shock therapies by suffering deeper pain in a very long bear market with dead credit, has been beyond their consideration. Good job, Greenspan. Poor Bernanke, as people said, timing is everything.
That is the main reason behind the deregulation of financial institutions during last 20 years, since Fed needs Wall St to fully utilize and leverage all the easy credits they provide. Pretty soon we are at the mercy of investment banks doing their own risk management with no reserves required (and we know they have done a great job of evaluating risk on both their products and their own firms!), not like the good old days when commercial banks were required by regulations to have sufficient reserves to make loans and mortgages. And unnecessarily keeping interest rate low forever has further increased the level of easy credits and liquidity.
A systems provider to Société Générale has denied technological responsibility for the fraud caused by rogue trader Jérôme Kerviel, who wiped €4.9bn ($7.2bn) off the French bank's full-year profits by evading at least five control and risk systems.
A spokesman for US group SunGard said: “It is not our policy to comment on specific customer situations. However, it is the responsibility of every financial institution to establish the policies and procedures for risk management and control, and the operational checks and balances to support them.”
Fintag says What next? How about blaming his parents? Or his diet? Or maybe his hairdresser? Or maybe better still the 2,600 asleep at the desk SocGen Risk Managers?
independent says " Eurex warned Société Générale of suspect Kerviel trades in November "
To find where true power and super-riches lie in modern Britain, go to the thickets of the hedge funds. In January 2007, $261bn of hedge fund money was managed from London by 72 firms that each control more than $1bn. That makes London the second largest hedge fund centre after New York.
Superhedge Fund Manager. Hedgefunds: The new global super powers
Although they are usually described as City businesses, most of them are not based in the Square Mile, London's financial district, or in the towers of Canary Wharf. Their stupendously rewarded managers live and work in Mayfair, Knightsbridge, Belgravia, Covent Garden and Chelsea. The journey from overpriced home to overpriced office to overpriced restaurant is just a short walk.
Habitually tieless and dressed-down casual, they sit at computer screens and construct complicated trading strategies. Many of them stay at their desks without pause or interruption from 7am to 9pm on weekdays and maintain electronic contact with markets at all other times. They are not to be pitied. Some of them are worth hundreds of millions of pounds.
One of the most successful of the younger generation of hedge fund tycoons is Nathaniel "Nat" Rothschild, the son of Lord (Jacob) Rothschild. He is a founder and co-chairman of Atticus Capital, which has $8bn under management. Atticus made a fortune from identifying early that Europe's stock exchanges were ripe to be taken over and merged with each other. According to Alpha magazine, he earned $240m from Atticus in 2006.
Fintag says Only second to New York? Shocking.
DEATH OF VAR EVOKED AS RISK-TAKING VIM MEETS TALEB'S BLACK SWAN
The risk-taking model that emboldened Wall Street to trade with impunity is broken and everyone from Merrill Lynch & Co. Chief Executive Officer John Thain to Morgan Stanley Chief Financial Officer Colm Kelleher is coming to the realization that no algorithm or triple-A rating can substitute for old-fashioned due diligence.
Value at risk, the measure banks use to calculate the maximum their trades can lose each day, failed to detect the scope of the U.S. subprime mortgage market's collapse as it triggered more than $130 billion of losses since June for the biggest securities firms led by Citigroup Inc., Merrill, Morgan Stanley and UBS AG.
The past six months have exposed the flaws of a financial measure based on historical prices that securities firms use idiosyncratically and that doesn't anticipate every potential disaster, such as the mistaken credit ratings on defaulted subprime debt.
``Finance is an area that's dominated by rare events,'' said Nassim Taleb, a research professor at London Business School and former options trader. ``The tools we have in quantitative finance do not work in what I call the `Black Swan' domain.''
Fintag says We all use RiskMetrics to calculate our Value at Risk. Our investors demand it. But it is completely useless and meaningless. I don't think I ever look at it.
I wonder what SocGen's VaR has been lately? Did it help then spot any wrong doings? Or what about subprime and credit agency re-ratings? Did the VaR help Morgan Stanley, Merrills, Citi etc etc trade differently? No.
Risk Management is about common sense. It is about experience and hedging. Risk Management is about investing in Hedge Funds. QED.
3 comments
anonymous said ...
yawn
29 Jan 08 - 14:49 gmt
anonymous said ...
YASFOS, I suppose this Sunday you go to AZ and see the stadium is empty at the Super Bowl along with the hotels, bars, restaurants, etc.
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