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
Having been accused of turning into Jeremy Clarkson (for US readers he is a journalist who believes his own hype) it is time for serious reflection.
The markets are the worst I have seen. Ever. Worse than when I was trading FX during the Soros ERM crisis, being with Eddie George during the Barings crash, answering questions to the SEC regarding LTCM at 3 in the morning after 1 pint too many at the Irish Punt and being fired in Hong Kong during the Thai Baht debacle [Editor: You sound like Forrest Gump]. Ok, we are not hitting the really fat tails, the sort of 1987 draw downs that freaked out Gordon Gekko, but this is worse. Much worse because the only people who know what is going on are opaque central bankers and governments. The volatility and uncertainty is killing us all.
I was chatting to a Prime Broker, the one I thought was untouchable and may end up being taken out by Wachovia, yesterday and they said the start up hedge fund industry is over, that fees are going to go sky high and the current hedge fund market is going to contract. The good news is the really good (are there any left?) who can make low vol returns over the inflation rate hurdle will be supported. The rest dropped. Derivatives, structured products, anything that takes more than a sentence to explain will not be tolerated. Managers not supported by big balance sheets laughed at.
The SEC and FSA may get there first though and ban short selling outright. If this happens, the hedge fund industry will shrink quite rapidly. How can you hedge without shorting? Put options are one thing but a good old fashioned short is much more exciting.
So where does this leave us? Having fallen off my USD6,000 chair, scraped my USD35,000 desk and knocked my newly acquired Hirst off the wall when I was accused yesterday of just being a 50 dollar settlements clerk, I suddenly realised that in this new world of fear and loathing, being a rich arrogant twat is no longer the order of the day.
So welcome to humble Finbar Taggit. [Editor: And I wonder how long that will last?] A fan of knitted sweaters and compliance.
Having spent some more humble pie time looking at the mess we are in, I have cracked it. Lack of transparency. That is why we are here today.
Analysts have been gagged since the dot com crash and apart from false rumors spread around on blogs and message boards, nobody has any idea what the banks have been up to. The board of directors are artificial and full of Sarbanes Oxley morons, the CEOs conflicted and shareholder activism almost non existent. The regulators have been obsessed with Capital ratios when they should have been focusing on full transparent reporting. Again, it was the regulators who contributed to distortion and not allowing analysts to tell it how it really is has impacted us all.
So today's blame is Henry Blodget.
Time we installed CCTV into board rooms too.
Looking at the news, we have the unthinkable. Despite being reported to the UK's FSA for spreading false rumors that Morgan Stanley and Goldman Sachs were both bust, I was pleased that the markets agreed and so dispelled the rumor as being false.
However, not in my wildest dreams did I ever expect the two greatest banks on Wall Street turn into penny stocks. This is not right. We can certainly blame the Fed for causing uncertainty on a massive scale and unfortunately this is by no means over.
Was that a sensible analysis? Humble perhaps? Let me know (and let me know of any decent jobs that involve back office work like subs and reds, updating prices on Bloomberg, sending files from Beauchamp to UBS, that sort of thing. I make good coffee too...)
Homework Inspired, hopefully by us, a reader has put this youtube montage together.
Here is another reader's response to my view that Banks should produce two sets of accounts:
"Here are two real world examples that help to illustrate the suggestion's utility:
1. In the 1980s then "money center" banks were all technically bankrupt thanks to their loans to Latin America. But none went under. THEY DID NOT HAVE TO MARK THE LOANS TO MARKET. So instead they waited around until capital levels crept back up and then they wrote the loans down.
2. There is a very good real world example of running two sets of accounts so that outside observers have a clearer picture of what is going on. Hong Kong Land has been doing this ever since changes in acctg standards forced them to mark property holdings to market (this change was a forerunner to that now governing accounting for fin'l instruments). Each year (given the amount of property located in Asian markets which tend to move up or down relatively quickly) the audited accounts show a lot of volatility from statement to statement, even though HK Land typically is a long-term developer/holder of property. So HK Land issues a side statement, for illustrative purposes, showing results on a non-mark to market basis. It is very useful. Maybe the only time in their history a Jardine group business has made something more transparent! "
The global credit crisis and the collapse of Lehman Brothers have punished all manner of hedge funds. But in London, where a number have already been closed, the retreat has a particular resonance.
Along with celebrity chefs, Russian oligarchs and Italian soccer coaches, hedge funds that established operations here in the last decade have been viewed as a mark of London's new hip spirit of decadent cool — a notion reinforced by the British pound's long period of strength and a housing boom.
Now, the failure of Lehman Brothers, which had deep relationships with some of the largest hedge funds in the world, has unsettled an already jittery market, inciting fears that some hedge fund assets might be frozen here and thus unavailable for sale if investors want to redeem them.
For GLG Partners, the largest, most scrutinized hedge fund in London — whose founding partners were originally backed by Lehman — the uncertainty added to broader concerns.
Fintag says So what happens if a shareholder of your firm goes bust? The liquidators have to sell the stake I guess.
Anyway, it is grim out here in Mayfair. I am having lunch at some cheap and cheerful Italian where the owner recently stabbed himself [Editor: I don't believe you] and the clientèle are not for sale.
Morgan Stanley is holding talks with American retail and mortgage bank Wachovia about a possible merger. The investment bank, whose shares fell as much as 44pc yesterday, is keen to find a commercial bank with a significant deposit base in order to increase its access to capital in light of the continued credit crunch.
The talks are just one of a number of discussions under way in the US banking sector, with Washington Mutual (WaMu) now firmly up for sale and a deal to save Lehman Brothers' investment management arm thought to be imminent.
Wachovia chief executive Bob Steel, the former under-secretary to the US Treasury, is believed to have telephoned Morgan Stanley chairman John Mack on Tuesday to ask him to consider a deal.
Fintag says In all my life, I never expected to see this headline. It is unreal.
When I started FiNTAG 3 odd years ago, I pretended Finbar Taggit had worked at Goldmorgan Stanley. Never did I think that this could infact become the name of a bank. Goldman and Stanley combining would work but that large debt bucket Wachovia?
The Western world faces the worst financial crisis since the 1930s. So they say. But they're wrong. To a large extent, the troubles that have claimed Lehman Brothers and Merrill Lynch, and may yet do for AIG, are not so much a financial crisis as an ownership crisis. It is not markets that have failed, but a peculiar form of ownership that we have taken for granted for decades - stock market-listed companies with dispersed shareholders.
To see this, consider the curious incident of the dog that hasn't barked - hedge funds. We have not (so far) seen a widespread collapse of these. Yes, a few have gone to the wall, but as there were thousands, this is barely more than normal attrition. And yes, their average returns have been poor. But they have not been a serious source of instability in the wider financial system. They might become victims of the crisis if their financing dries up, but they haven't caused it.
Fintag says Glad to see someone reading FiNTAG ripping off something I wrote a while without giving me credit.
Even Morgan Stanley and Goldman Sachs, the two last titans left standing on Wall Street, are no longer immune.
To the surprise of executives within those firms, and their rivals, the stocks of these powerful companies were drawn into the crisis of investor confidence on Wednesday. Morgan Stanley, whose stock fell almost 25 percent, was considering a merger with Wachovia or another bank to help shore up its finances. Goldman Sachs's stock fell almost 14 percent, and it had to rebuff rumors that it was seeking a capital infusion.
The assault on these two companies underscored how quickly a sense of fear is spreading through Wall Street. Both firms just reported respectable profits on Tuesday, and were considered in a separate class from weaker banks like Bear Stearns and Lehman Brothers that saw the value of their businesses evaporate.
“Stop the Insanity,” wrote Glenn Schorr, a brokerage analyst at UBS, in an e-mail message to clients on Wednesday.
Fintag says Forget my analogies about this being a repeat of the 1970's. This is a depression, 1930's style.
US securities regulators on Wednesday night said they would subpoena hedge funds for their past trading records and may force investors to disclose short sale positions, in the latest move to combat potential market manipulation.
The announcement followed another day of tumultuous trading in the stock market. Shares of Morgan Stanley and Goldman Sachs plunged and the cost of insuring their debt rose sharply - a sign of waning investor confidence in Wall Street's last two large investment banks.
The Securities and Exchange Commission has come under heavy pressure from Wall Street executives and lawmakers to take tougher action against abusive “naked” short-selling, which many claim has helped to push floundering financial companies over the edge. The commission held an emergency meeting on Wednesday afternoon.
Fintag says What next? The banning of short term long holdings? The banning of day trading? How about reducing the opening hours of the NYSE?
Disclosing shorts is fine and should be encouraged. But it will not solve the underlying systemic and structural problems that the US Treasury has exacerbated. I expect option trading will intensify as an alternative and new off exchange dark pool type trading will occur instead. It is an interesting debate.
Hedge Funds provide massive liquidity to the markets. Without this the markets will get much worse.
Lloyds TSB is to take over HBOS in a £12bn deal which will create a banking giant holding close to one-third of the UK's savings and mortgage market.
The firms' boards agreed on Wednesday to a deal, to be formally announced later, valuing HBOS at 232p per share.
The move should calm uncertainty about the strength of Halifax Bank of Scotland after a run on its shares.
HBOS is currently the country's largest mortgage lender with 20% of the market. Lloyds ranks fourth with an 8% share.
Fintag says Lloyds failed to get Abbey or Northern Rock. This time it breaks the takeover panel's rules but in times like this, rules are not important. What next? The EU scrapping its investigations into Microsoft and Intel and allowing them to merge for the sake of the planet?
It had to happen though. It has taken the UK government a year to realise the mistakes it made with that tiny and useless but very expensive piece of Northern Crock.
THE MAYFAIR MAFIA WHO HELPED TO BRING DOWN A BANKING GIANT
HBOS has suffered staggering losses in its share price this year, as fearful investors reacted to the market turmoil by selling off their holdings in the banks. These losses have been exacerbated by the controversial practice of "shorting" the stock, predominantly carried out by wealthy hedge funds traders.
The controversial trading strategy has come under attack this year, with politicians, investors and regulators pushing for more transparency over the practice and higher controls to protect vulnerable stocks. Some have demanded an outright ban in some cases.
Investors buy shares to profit from company's growth, which leads to a rise in its share price. Short sellers are betting the opposite way; their profits soar when a company's value slumps. Short sellers borrow shares from a long-term shareholder - normally a pension fund or insurance group - for a fee and immediately sell it into the open market. Should the price decline before the agreed time to return the shares, the trader pockets the difference.
Fintag says Oh, its my fault. What about the board of directors who recklessly allowed HBOS to lever itself and buy hard to price assets. It used to be a simple deposits / loan shop and then turned into a bucket of crap.
If hedge funds had not been allowed to short HBOS, do you think its share price would still have remained high? Of course not.
There are some who will have made money but quite frankly the market is so volatile, any old settlements clerk would struggle to make money in these extraordinary times.
SENATE MAJORITY LEADER REID: "NO ONE KNOWS WHAT TO DO"
The U.S. Congress is unlikely to pass new legislation to overhaul financial regulations this year because "no one knows what to do,'' Senate Majority Leader Harry Reid said today.
"We are in new territory, this is a different game," Reid said at a briefing in Washington. Neither Federal Reserve Chairman Ben Bernanke nor Treasury Secretary Henry Paulson "know what to do but they are trying to come up with ideas," Reid said.
White House spokeswoman Dana Perino said today that the administration is willing to consider a suggestion in Congress to have the U.S. buy distressed mortgages, akin to the role the Resolution Trust Corp. played in disposing of bad debts of from savings and loan associations in the late 1980s and early 1990s.
Senate Banking Committee Chairman Christopher Dodd said the Federal Reserve has the authority to act as an "effective Resolution Trust Fund" to buy up and dispose of bad debt stemming from the subprime mortgage crisis.
"The Fed has the authority to move in this area," Dodd told reporters in Washington.
Fintag says That makes me feel really warm inside.
Funds of hedge funds showed the first signs of an asset slowdown in the first half of 2008, but still posted a net inflow of some $50 billion despite volatile markets and lackluster returns.
According to the latest survey of the InvestHedge Billion Dollar Club, funds of funds had average loss of 1.25% for the first half of 2008, and grew their overall assets by only about 4.5%, compared to 17% during the first half of last year.
The largest funds of hedge funds—those with more than $1 billion in assets under management—now control a combined $1.16 trillion in assets. Union Bancaire Privée took the top slot from UBS Global Asset Management A&Q as the largest single allocator by assets under management with $56.87 billion.
Fintag says Thankfully they are growing and not contracting.
A series of large hedge funds switched money out of Morgan Stanley's prime brokerage or were considering moving after the cost of insuring the investment bank's bonds against default soared and Lehman Brothers collapsed.
Many hedge fund managers said they were reassessing the risk of doing business with Morgan Stanley and, to a much lesser extent, Goldman Sachs after the failure of Lehman and agreed takeover of Merrill Lynch left only two large US broker-dealers.
The moves come amid widespread concerns at hedge funds and banks about renewed risks of failure of a market counterparty as a result of the US decision to allow Lehman to fail.
Morgan Stanley's lucrative prime brokerage division, the world's largest, lost low single-digit percentages of balances on Monday and Tuesday, according to people familiar with the business. Rivals say many funds are putting legal agreements in place to allow more to shift, and both funds and competitors said the move of cash balances accelerated yesterday, with one estimating there was over $20bn (£11bn) left.
Fintag says Of course the winner would have been Goldman but given this will end up merging with HSBC or someone completely incompatible, Deutsche Prime Brokerage must be having multiple orgasms. All these new clients and some of the best hedge fund names too flocking to its PB desk.
Our PB's are Goldman and Morgan Stanley. Never did I think we would end up having to use a useless German bank. But as they say, what comes round, comes round.
* BUSINESS * REGULATORS TRADING: REGULATORS TAKE ACTION TO CURB 'ABUSIVE' MOVES BY SHORT SELLERS
Short sellers in New York and London face tough new regulations as market officials attempt to curb what they see as "abusive" attacks on the proper functioning of stockmarkets - particularly the pricing of banking and financial shares.
The US securities and exchange commission yesterday imposed rules to end "price manipulating" through aggressive short selling. The chancellor, Alistair Darling, this week signalled that the Financial Services Authority was looking at closer policing of some short selling activities.
The moves come after hedge funds betting on a drop in the price of Lehman Brothers' shares were estimated to have made some $3bn (£1.7bn) when the bank filed for bankruptcy protection on Monday. Short sellers made even bigger gains when rival Bear Stearns failed in March.
Fintag says I have a better idea. Why not round up all the hedgies, put them on trains and gas them. Is this where we are heading? Goodbye rational discussion. Welcome to a new era of fascism.
bloomberg says " SEC May Require Disclosure of Hedge Funds' Short-Sale Positions "
Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz), the giant U.S. savings and loan beleaguered by mortgage losses, has put itself up for sale, sources familiar with the matter said on Wednesday.
The Seattle-based thrift has hired Goldman Sachs & Co and Morgan Stanley to run an auction and potential suitors include Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co, one source said.
Banks abruptly stopped lending to each other or charged exorbitantly high rates Tuesday, threatening to spread the troubles of American International Group Inc. and Lehman Brothers Holdings Inc. to a broad range of financial institutions and the global economy.
The breakdown came despite efforts by central bankers to keep money flowing. Central banks in the U.S., Europe and Japan pumped tens of billions of dollars each into the banking system. The Federal Reserve, while declining to lower its benchmark interest rate at a regular meeting Tuesday, said it will "act as needed" to combat ills including tight credit and the ...
Fintag says When banks cannot borrow, they hoard cash. This is not sustainable and usually the central banks force the banks to lend. So why don't they?
Lehman Brothers' London-based staff who have continued working since the US bank went into administration two days ago have been told they will get paid this month, despite doubts earlier this week that any funds would be released to pay their salaries.
Staff have been told by administrator PwC, which took control of Lehman Brothers' European business on Monday, that they will be paid their salary for the last month by September 30
Fintag says As usual. Incompetent bankers thinking about themselves. And all those creditors and shareholders who kept Lehman going are shafted. Again.
bloomberg says " Lehman Spurned Korea Development Bank's Offer of $6.40 a Share "
GLG: NO COUNTERPARTY EXPOSURE TO MERRILL, LEHMAN, AIG
Don't blame GLG Partners for wanting to distance itself from the bad news on Wall Street.
The publicly-traded alternatives shop said its funds have no counterparty risk exposure to either Merrill Lynch or AIG, and with respect to Lehman Brothers, the firm last week transferred substantially all of its remaining assets with the bankrupt firm to other prime brokers.
Fintag says That must be because Coffey has left. That man would buy any old junk.
Facing market turmoil and investors redemptions, hedge funds have boosted their cash holdings to among their highest levels ever, according to new research.
Citigroup estimates that hedge funds have about 30% of their assets in cash, possibly their highest cash holdings ever. The bank said that hedge funds currently have about $600 billion in cash. Hedge funds held about 20% of their assets in cash prior to the outbreak of the credit crisis last year.
Fintag says You bet. I have have been holding cash for much of the year.
You can't beat Libor.
30 comments
GameOver said ...
As ever Finbar your prescient analysis starts my day with an insightful laugh.
btw the youtube url doesn't work !
18 Sep 08 - 06:59 gmt
Finbar said ...
Now fixed.
18 Sep 08 - 07:15 gmt
anonymous said ...
Long humble pie, short rich arrogant twat is a wise strategy at the moment I think....but then again, I'm not sure you've ever done anything else?
18 Sep 08 - 07:26 gmt
anonymous said ...
don't joke about cutting hours of trading on NYSE. They did exactly that in Tokyo a few years ago. Albeit for different reasons - their servers couldn't cope with the volumes going through.
18 Sep 08 - 08:26 gmt
GalwayBoy said ...
One rumour doing the rounds yesterday in the banks was that there might have been manipulation of CDS trades by Hedge Funds to keep financial stock prices down. Time for the tinfoil hat I think. This kind of market shock was long overdue.
18 Sep 08 - 09:40 gmt
anonymous said ...
The battle with the guards was magnificent. And I was going to ask you to join us...
18 Sep 08 - 10:08 gmt
anonymous said ...
What happened to the index predictor?
18 Sep 08 - 10:08 gmt
GalwayBoy said ...
This week's word is Schadenfreude
18 Sep 08 - 10:40 gmt
MsR said ...
Hubris is my favourite GalwayBoy
18 Sep 08 - 11:02 gmt
anonymous said ...
does anyone know this months average hedge fund results? how many have gone under etc?
18 Sep 08 - 11:26 gmt
anonymous said ...
coffey's fund has been liquidated this week?
18 Sep 08 - 11:41 gmt
GalwayBoy said ...
I know what you mean MsR. Fuld must be kicking himself
18 Sep 08 - 12:25 gmt
Ms R said ...
Well Galway Boy, good times and vast amounts of money have the knack of inflating egos and encouraging a certain sense of omnipotence.
I'm just worried about all those hookers who will be struggling for regular income now. And those poor drug dealers....
18 Sep 08 - 12:37 gmt
anonymous said ...
Oi Coffey! now that you have been liquidated perhaps you will have time to have a wash
18 Sep 08 - 13:17 gmt
Insider said ...
Editor - Finbar seems to be not so much Forrest Gump as Harry Flashman...
18 Sep 08 - 13:29 gmt
Vermont Trader said ...
"How about reducing the opening hours of the NYSE?"
That's the best idea I've heard all year...
How about a lunch break too.
18 Sep 08 - 13:54 gmt
anonymous said ...
and brunch. and afternoon tea. lets go back to the old school network.
18 Sep 08 - 14:08 gmt
Moron said ...
hey fin...is that ur ride in the pic....if it is its horrible:))
18 Sep 08 - 14:34 gmt
GalwayBoy said ...
Fin, have you joined the stampede from MS Prime brokerage?
18 Sep 08 - 14:52 gmt
Alpha60 said ...
I always thought of Fin as an aston martin man
18 Sep 08 - 15:11 gmt
anonymous said ...
Looks like the SEC's move to require HFs to locate stock before shorting has backfired, as stock lending analysts Data Explorers report that PBs have borrowed an extra $22bn on behalf of their clients 'just in case'!
18 Sep 08 - 15:21 gmt
MacroHedgeBoy said ...
But is he a He? I wonder if Fin is a She or even a TV. There is evidence: an obsession with handbags, the appearance of a mysterious but possibly glamorous female linked to fin (MsR), and a very camp car…..
18 Sep 08 - 15:26 gmt
anonymous said ...
"LONDON (Reuters) - Prime Minister Gordon Brown said on Thursday there was a need to look at "irresponsible behaviour" in financial markets following the global crisis that has seen banks collapse." right lets keep on shorting until this fuc++ng idiot is out of office. what a @u*t
18 Sep 08 - 15:31 gmt
anonymous said ...
No he's a Scottish @u*t
18 Sep 08 - 15:40 gmt
Moron said ...
gay men are the real men:))
18 Sep 08 - 15:47 gmt
anonymous said ...
like howard from the halifax!
18 Sep 08 - 16:19 gmt
anonymous said ...
well they certainly know ho to take it.......
18 Sep 08 - 16:20 gmt
GP said ...
Brown takes credit for HBOS merger PM says government took key role in rescuing Britain's biggest mortgage lender and vows to deal with 'irresponsible behaviour' in the City - i doubt this will go down very well.
18 Sep 08 - 16:47 gmt
anonymous said ...
The FSA have banned short selling on financial stocks. Talk about bending over for politicians and taking it up the ****
18 Sep 08 - 20:24 gmt
anonymous said ...
ha my lawyer isn't going to sleep tongiht. Brown you are going down.
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The global credit crisis and the collapse of Lehman Brothers have punished all manner of hedge funds. But in London, where a number have already been closed, the retreat has a particular resonance.
Along with celebrity chefs, Russian oligarchs and Italian soccer coaches, hedge funds that established operations here in the last decade have been viewed as a mark of London's new hip spirit of decadent cool — a notion reinforced by the British pound's long period of strength and a housing boom.
Now, the failure of Lehman Brothers, which had deep relationships with some of the largest hedge funds in the world, has unsettled an already jittery market, inciting fears that some hedge fund assets might be frozen here and thus unavailable for sale if investors want to redeem them.
For GLG Partners, the largest, most scrutinized hedge fund in London — whose founding partners were originally backed by Lehman — the uncertainty added to broader concerns.