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
The UK government, not bothering with tweaking around the edges Bernanke style, has decided to buy out the UK banking industry. Given this is unchartered waters, it is difficult to analyse the effect it will have on the Hedge Fund industry. In theory, we should be high fiving because we will be free to do what the banks cannot do - enjoy the risks and rewards of capitalism.
Banks run by civil servants end up like the old European post offices that turned into banks; slow; conservative and lumbering. I think what will happen is that retail banks will never be able to do anything except retail banking. Forget having a prop desk, selling structured products or offering corporate finance and research - these will be conducted by new arms length institutions called enhanced hedge funds. This way we will all know that our cash held at banks is safe and other risky investments conducted by hedgies.
Over the past few months I have been warning you that RBS was a bag of manure. But never did I believe Lloyds TSB or even Santander needed help too? That is where my own PA money is. Or was.
Today I am long safe manufacturers. The state owned banks will now be able to monitor everything I do - not that I have anything to hide but I don't feel comfortable having some civil servant finding out how much I tip the waiters at the Square. The non-state owned banks will now be at an unfair advantage and will collapse. Nobody can compete with the strength of a governments balance sheet (except in Iceland of course). This means all institutions that accept deposits will be nationalised. Such a massive distortion of the markets is a very BAD thing. It really is.
Cash is king and no longer do I use credit cards. I was under the impression credit cards were dead but it appears not as I was invited at the weekend to take out a 0% card from that soon to nationalised bank HBOS. This sums up where we are.
This week will be rocknrolla but I will be sitting this one out.
Black Friday Apologies for the short newsletter on Friday. It was a black day and I was going to Hong Kong but had to postpone it for obvious reasons. My next trip will be taking my gold ingots to a safe haven in Switzerland.
FINANCIAL CRISIS: HBOS AND RBS 'TO BE NATIONALISED' IN £50 BILLION STATE INTERVENTION
In a move which fundamentally changes the nature of banking, Gordon Brown decided the Government had no choice but to take a majority shareholding in both banks after he discovered they were far more vulnerable than had previously been thought.
Lloyds TSB will also be given a taxpayer-funded handout in return for shares, while Barclays will announce plans to raise about £7 billion privately to avoid seeking Government assistance.
If the plan succeeds, Barclays would be the only major British-owned High Street bank to be fully independent. The only big bank that does not need cash is the foreign-owned HSBC.
More than £50 billion of taxpayers' money will be invested in banks in return for shares under the new plan to be announced on Monday morning. Those banks which become majority owned by the state will also be state-run, with Government-appointed board members put in place to ensure the banks begin lending to businesses and individual customers again.
Fintag says Personally I feel much safer. However, I will be using the ATM more frequently because I don't want my government snooping on my lifestyle.
However, the UK banks contribute to 9% of GDP and nationalising them will cost 4% of GDP. This is unprecedented in history. The impact on our lives is yet to be realised. We are all rabbits staring into headlights.
finfacts says " Global Financial Crisis: Eurozone leaders agree on sweeping rescue plan; France, Germany, Italy and other countries will announce national measures Monday "
AMID GLOBAL CRISIS, HEDGE FUNDS EXPECTED TO DO WELL
The largest economy in the world is in chaos and according to the Secretary of the US Treasury, Henry Paulson, the effects of these breathtaking events are wide ranging.
Hedge funds are expected to continue to perform well, however, says a partner at Walkers.
“We see evidence every day that world economies and financial markets are more connected and interdependent than at any time in history,” Mr Paulson announced last week, adding, “We see evidence that the freezing of credit markets is having a tangible impact on the everyday lives of citizens all around the world.”
The 7 percent drop in stock market value recorded on Thursday (9 October) equalled US$872 billion in investments, according to media reports. The Dow Jones Industrial Average, a composite index of the top 30 traded companies in the US, fell to a five-year low of 8,579. And, according to the Dow Jones Wilshire 5000 Composite Index, a firm that tracks every US stock, investment losses for this year to date total US$8.3 trillion.
Just picture a football field covered with $100 dollar bills stacked 50 feet high, to offer some idea of how much money has been lost in just the US stock market alone.
Across the US, 13 banks have failed since the beginning of the year with the Washington Mutual collapse becoming the biggest bank collapse in history.
Fintag says Remember when joining a hedge fund was considered a risky adventure? How times change.
ICELANDIC TYCOON BEGS BHS BOSS SIR PHILIP GREEN TO STEP IN
The tycoon at the heart of Iceland's financial meltdown appealed yesterday to the billionaire Sir Philip Green to rescue his sickly Baugur company, which owns shops up and down the British high street.
Jón Ásgeir Jóhannesson became the first of Iceland's new breed of millionaires to break cover with an unrepentant appearance on state television during which he clashed repeatedly with his interviewer. Since the crisis broke ten days ago, the country's bankers and entrepreneurs have been keeping out of view, fearing the wrath of ordinary Icelanders and overseas savers.
The Icelandic Government was counting on Sir Philip - one of the most powerful figures in the British retail scene - and the Treasury to restore confidence to the country before markets opened today. There is concern that the coming week could be pivotal for Iceland; the currency could plummet, crippling an economy heavily dependent on imports.
Fintag says Of course not all governments can afford to nationalise a large chunk of their private companies.
MARGIN CALLS PROMPT SALES, AND DRIVE SHARES EVEN LOWER
For some big investors and corporate executives, Mr. Margin is calling.
In the last week, as the value of stock portfolios has plunged, executives and fund managers who had bought shares on margin — that is, using borrowed money — have been forced to sell millions of dollars worth of stock to settle those loans with banks.
Professional investors say that the margin calls probably added to the pressure on stock prices last week, when the average stock plunged nearly 18 percent.
Some analysts and investors are concerned about a situation in which margin calls occur in larger numbers, causing an even bigger wave of selling, even though most analysts say that stock prices are already historically low.
Fintag says Exactly. As hedge funds face redemptions, they have to liquidate positions. This means fire sales and the markets fall. A few lying banks who are seeking help will not prevent nervous investors from wanting to sit on cash (but not at Morgan Stanley, the next to go bust/saved bank). These times are unknown so how can one have a strategy?
investing is usually based on past behaviours, history and gut feel.
Today the Black Swan has been discovered.
TAX DEFERRALS - WILL CHANGES TO THE US TAX CODE BE THE DEATH KNELL FOR HEDGE FUND CORPORATE GOVERNANCE?
A key recent change to US tax provisions, contained in the "Emergency Economic Stabilization Act" of 2008, is the long threatened and now real elimination of tax deferrals for US hedge fund managers. Under this mechanism, US managers were able to defer incentive and / or management fees earned in their offshore funds for up to 10 years. As such, the fee income could grow on a tax free basis.
We have commented on this structure before. Our particular concern has always been that some managers have adopted very elaborate deferral schemes. At face value, most investors simply assume that when a hedge fund manager says that they have, say, $100 million in deferred fees invested in the offshore fund, that those funds are invested alongside external shareholders and are at risk with the fund's strategy pari passu.
Not so. Some managers take advantage of an ability to reference deferred fees to "other assets" (as another example of "prospectus creep", most leading law firms now automatically write this provision into fund offering documents.) As such, the deferral can be linked to unrelated assets anywhere from treasuries and S&P futures to a portfolio of other hedge funds - this leaves the fund in the bizarre position of having a fund of funds portfolio on its balance sheet which is only allocated to the manager. While US tax lawyers may choke on this "emperor has no clothes" comment, this is pretty close to blatant tax fraud: you have basically turned an offshore hedge fund into a tax shelter for completely unrelated investment assets.
Going forward, the new US legislation eliminates new deferral structures from January 1, 2009, thankfully removing this abuse.
Fintag says Not if your manager is based in Switzerland. That is where I am going.
TEN EUROPEAN FUND MANAGERS SIGN HFSB CODE OF BEST PRACTICE
Arrowgrass Capital Partners, Blackrock Investment Management UK, Concordia Advisors (Bermuda), GLC, Montrica Investment Management, New Star Asset Management, Otus Capital Management, Proxima Alfa Investments SGIIC, Ruby Capital Partners and Sabre Fund Management have agreed to the best practice guidelines.
Including the 14 original members of the HFSB, managers now signed to the code account for about half of all hedge fund assets under management in Europe.
Fintag says Now the SEC, FSA et al have been truly discredited, it is time us in the private sector got our act together.
Question of the day? Now the banks are state owned, what role do the regulators play? Surely these state regulators, regulating state owned assets, will become compliance departments for the banks? [Editor: And?]
NOW IS THE WITCHING HOUR WHEN WE FIND OUT IF WE ARE IN FOR SYSTEMIC MELTDOWN
If we escape the mess, we can never let bankers bring us to this point again.
Stripped of their ideological hang-ups, policymakers are rediscovering some of the policy lessons of their forebears: state intervention to bail out banks, deposit insurance, a coordinated easing of policy. It is this that provides hope the Fund is right when it says the worst will be over by the end of next year and that a slow recovery will begin in 2010.
The events of the past month have made it more likely that there will be a deeper and more prolonged recession than the Fund is predicting. The spillover effects from the paralysis in credit markets are now being felt in the real economy, and policymakers are fully aware that failure to free the obstruction could unleash a wide-hitting tsunami of bankruptcies, job losses and repossessions. In those circumstances, it would no longer be fanciful, as it has been up until now, to make comparisons with the 1930s.
Policymakers have made it clear that they will do whatever it takes to avoid a depression. Even so, the next couple of years are going to be ghastly, especially in Britain, where there has been an unhealthy dependence on the housing market and financial services.
Gerard Lyons, the chief economist at Standard Chartered, believes the loss of output next year could be close to 2%, which would make 2009 a contender for the toughest year Britain has suffered since the second world war. As things stand, that looks entirely feasible.
Widespread rate cuts also imply that the global economy is slowing down, with negative implications for Asia's export-dependent markets.
The world's financial leaders took another verbal stab at halting the escalating slide in global stockmarkets on Friday and over the weekend, but the initial response by the US markets show investors remain sceptical that it will have much effect.
CLSA's Wood said the fact that policymakers have finally begun to “get real” means that policy will now be the main driver of world financial markets, and that policymakers have finally capitulated and accepted that the crisis is systemic in nature and therefore requires a systematic policy response rather than a series of ad hoc measures.
“This does not mean that governments and central banks can now wave a magic wand and make everything better. Nor does it mean that bank lending is not about to slow dramatically on a trend basis in the Western world; nor that Western economies will not go into recession. But it does mean that the policy response is likely to improve from here and that the complete breakdown of the global financial system has a much better chance of being avoided.”
Fintag says And cooking. I need to learn how to do this. Having been a restaurant whore for most of my life, this must come to an end. Or maybe not? I need to go long soup kitchens.
The Tiger Cubs for years have been known as among the brightest of hedge fund stars. But a brutal September has left many of these scions of Julian Robertson bloodied, according to The New York Post.
Here's a tale of the tape, drawn from The Post's unnamed sources. Lee Ainslie's Maverick fund dropped nearly 19 percent in that month, while his Maverick Leveraged fund fell 35.5 percent. Tiger Global dropped 14 percent, while Steven Mandel's Lone Pine Capital tumbled almost 15 percent.
Fintag says But do you see them crying to mummy for help? No.
PHILIP FALCONE, the American hedge-fund manager who made a killing by betting against the shares of HBOS, now has the UK's second-largest retail bank in his sights.
In the past week his hedge fund, Harbinger Capital, has built up a €208m (£165m) short position in Santander, the eurozone's largest bank and owner of Abbey National, Alliance & Leicester (A&L) and Bradford & Bingley (B&B) in the UK.
While the shorting of financial shares is still temporarily banned in Britain, this is not the case in Spain. Falcone has made similar bets against BBVA and Banco Popular, Spain's next two largest banks. He has built up short positions of €225m and €139.8m in those stocks respectively. Being targeted by one of the wiliest investors in the sector will worry investors, especially because shares in the companies have already dropped so much in value. Santander shares have shed a third of their value over the past year, while BBVA and Banco Popular have lost nearly half their value.
Fintag says Nothing amazes me any more. Not even being sent this on Saturday:
STOCKS have tumbled to their cheapest for a generation, and company bosses took advantage of last week's turmoil to snap up shares.
The FTSE 100, Britain's blue chip index, plummeted more than 24% last week, its worst loss since Black Monday in October 1987, wiping £250 billion off the value of the country's leading companies.
Wall Street plunged 18% as investors fretted that recent moves by authorities to thaw frozen credit markets would not be enough to avert a global recession.
Fintag says Tempted?
financial times says " A lesson from 1929 for the hedge funds "
All the bailouts and “recapitalization” plans of the Treasury and the FED are highly inflationary and require issuing massive amounts of Treasury debt. The bond vigilantes are waking up. They are going to dump bonds like they have gone out of style. Bond prices will drop like a stone (as indicated by the black arrow in figure 1), general equities will drop more and the dollar will nose dive.
Fintag says ..didn't think so. Waiting a little bit longer may pay off.
GOLDMAN CONNECTION RAISES QUESTIONS OVER CONFLICT OF INTEREST
The honeymoon between Goldman Sachs and Washington DC appears to be over.
On Capitol Hill last week, congressional critics lashed out at Henry Paulson, Treasury secretary, suggesting that the former Goldman Sachs chief executive let allegiance to his company affect his decision to bail out AIG, the insurance giant.
Since the 1940s, when former Goldman chief Sidney Weinberg came to Washington, the Goldman Sachs credential has always stood above reproach.
But during hearings held by the House Oversight committee last week, several Democrats embraced a media report claiming that Mr Paulson saved AIG only after learning that Goldman Sachs had a $20bn (€14.8bn, (£11.8bn) exposure to the insurer. By contrast, Mr Paulson allowed a Goldman competitor, Lehman Brothers, to collapse.
Goldman said that it had "no material exposure" to AIG, that it held cash collateral as well as hedged positions. But in Washington, especially during an election season in which public anger has been turned squarely on Wall Street, appearances can trump reality.
Fintag says At long last ... the media are starting to ask the questions we have been asking for the last 2 years. When Paulson goes in December, will they plant another Goldmanite? Meez thinks not.
19 comments
anonymous said ...
Fin - on the Taleb clip, is that you randomly inserted at 3:40?
13 Oct 08 - 07:44 gmt
Finbar said ...
lol
13 Oct 08 - 08:30 gmt
anonymous said ...
This market is bonked and only day trader might make money if she is nimble. Look out below.
13 Oct 08 - 09:11 gmt
anonymous said ...
I didn't realise that Naseem Taleb looked quite so much like Salman Rushdie
13 Oct 08 - 09:35 gmt
Top Cat said ...
Yes, I noticed that too. And they both look like Ben Bernanke. More so before Taleb lost weight. I maintain my buy recommendation on baldness and goatee beards
13 Oct 08 - 09:58 gmt
Beadman said ...
2009 will be a great year for Hedge Fund, Banks have now will be restricted on what they can do by the goverment and by (little boys) accountants. This can only mean if you are an investor and want to take advantage of higher risk strategies you can only do this at a hedge fund. Hegde funds need to see the next couple of months through and those that do will prosper.
My name is Beadman and im signing out.
13 Oct 08 - 12:29 gmt
anonymous said ...
is Finbar actually Peston ?
I think we should be told
13 Oct 08 - 13:17 gmt
Robert Peston said ...
No, I'm Robert Peston, and stop reading this blog anonymous 13:17 and get back to reading mine, with my insightful and vivid analysis on the current crisis.
13 Oct 08 - 14:31 gmt
GalwayBoy said ...
Only far heavier PRAVDA like moderation and editing than here
13 Oct 08 - 15:18 gmt
Moron said ...
i am shorting this rally...this is silly...going right into earnings season...expect the mother of all fades
13 Oct 08 - 15:42 gmt
Charles P said ...
Fintag, you clearly do not know anything about running a pyramid scheme. When the chips are down, when the peasants are lining up outside with pitchforks having found out the scam, you abandon the gold bars (too heavy) and grab the diamonds before jumping into the helicopter and heading for the border. The gold is only for the good times, but its not portable enough. The bags of diamonds are for the getaway. Everyone knows this.
13 Oct 08 - 15:43 gmt
Dan said ...
This US deferral business is quite annoying. And has no solution short of bolting completely (with high penalty, as they've changed those rules as well now).
13 Oct 08 - 15:49 gmt
Dan said ...
No no no, it's jewelry. Stones alone never do so well in times of crisis. Where's Barton Biggs?
13 Oct 08 - 15:50 gmt
Robert Peston said ...
Be prepared to take it hard Moron...me and my mates in the govt will ensure peace and prosperity in the markets from now on...death to shorters
13 Oct 08 - 16:28 gmt
Moron said ...
fu*k off:))
13 Oct 08 - 16:31 gmt
MsR said ...
Charles P and Dan: Drugs are what you need. They are portable and accepted in all parts of the world unlike AMEX. More importantly they can be quickly traded for arms should the people come after you. When you need a mobile rocket launcher, the last thing you want to do is be haggling in a souk over the price of diamonds.
13 Oct 08 - 23:00 gmt
anonymous said ...
Fear not!!! All is well!! All is well!! Gordon Brown
14 Oct 08 - 02:13 gmt
anonymous said ...
No talk about the biggest one day US rally in 69 years. As I said Friday a rally is a coming. The big dog will wag all tails around the world. Guy
14 Oct 08 - 03:42 gmt
dan said ...
With all due respect Missus; i disagree. it's a backwards arb opp at best - you'd be on the losing side. any place you'd find a souk, you'll find drugs a plenty. as for trading arms... i'm still with jewelry.
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