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
Volatility traders are having a field day. It was only a few years ago when tumble weeds flew across their desks and like a surfer looking for a wave on a calm sea, it was very gloomy indeed. In todays market, the surf is tsunami like and those long tails are getting longer and fatter. This is what massive government intervention does. The VIX is having an epileptic fit.
As much as the super heroes of our time are saving the world, it must be recognised that nationalising is much easier than denationalising. India, in 1969, nationalised a large chunk of its banking sector and even today large numbers of overly bureaucratic banks are run by civil servants and funded by tax payers. In some ways this has been a good thing for India as the shareholders and stakeholders no longer satisfy their own needs, but those of their country. More branches, a mandate to lend to small firms, a large and diverse banking sector and a government that can control how money is lent. The downside is the government commands and controls how cash is lent to the detriment of market forces, the bankers are not incentivised to make the banks efficient and staff turnover means there is never any long term planning. India's banking system is a classic emerging market type mess. Sound familiar?
As a rampant capitalist (I think) the upshot of governments owning the banks is a lack of choice and the flight of deposits to these banks. Private banks will suffer hugely and competition will stop. The worst part of these bail outs is who is going to pay for it all? As usual, the West is acting like a petulant teenager wanting everything now without the responsibility of clearing it up afterwards. It feels like we are pumping botox into our faces and silicon into our pecs and trying to fight the inevitable that the West is old and creaky and needing new blood. Hedge funds for example. Going down the Gym was fine but now the times we can go are regulated by state officials. [Editor: Uh?]
Given the savings ratios are negative in most countries, and disposable incomes will shrink further because the interest on the debt the governments will have to issue will have to be serviced by tax increases during a time of increasing unemployment, these banks will get smaller and lending will get even tighter. We already have a credit crunch - the crunch is going to get worse. Debt auctions will not be taken up and rates will rise to entice investors. Higher rates means inflation and more tax revenue needed. And so on. Next we have stagflation. We may laugh at Iceland and Zimbabwe but this could be the rest of us next.
So while we all get another instantaneous fix, and once more delay the inevitable hangover, let us think about what it will be like this time next year? Very unpleasant. Almost Max Mad like. But we don't like to think short or medium term do we? Markets are so irrational I doubt any academic could say they are not. The bottom is nowhere to be seen and this is causing the panic.
The anti bonus / rich / success culture is kicking in and of all places the USA, socialism is the new order. Obama will be the new Stalin and the streets of New York something out of the French Connection. I may joke but it took less than 5 years for New York and London to turn to from hedonistic opulence to anarchy. Remember when Jo'burg was safer than New York? Or the Brixton riots in London? The late 70's / early 80s was a nasty wake up call.
I know history is passée and it is always different this time. Well it's not. Human nature is the same. When things get tough, we hunker down and fight for our lives. A world of fat middle classers who have relied on cheap and easily accessible credit with high disposable incomes is over. Times are going to get lean and really unpleasant.
Knowing most of you cannot read more than a couple of sentences without moving to the next website or important piece of news, let us not get too dispondent because sometimes bread and water can be just as enjoyable as Foie Gras and a 1983 Chateau Pichon-Lalande (Pauillac). I think.
Life on Mars
GREED THAT FUELLED THE CRASH: HOW CITY FAT CATS TOOK HOME £17BN BONUSES... AS THEIR BANKS CRUMBLED
The scale of City greed was laid bare tonight on the day taxpayers handed British banks an historic £37billion lifeline.
As the seeds of the current financial crisis were being sown, bosses awarded themselves a record £17billion in bonuses.
The extent of the Square Mile's reward system left MPs seething hours after Gordon Brown unveiled his unprecedented nationalisation of two of the nation's biggest banks.
Fintag says Resentment is a typical response. Of course, without bonuses house prices will fall even more, stock market volumes will fall and pensions depleted. Governments are very bad at spending money which is why the most successful countries have thriving private sectors. But this era appears to be over in the West.
Thankfully us nimble hedge funds can hide in entrepreneurial countries like Singapore and Switzerland and make money for our investors. We are the future and will become the black market of the West. [Editor: Nice]
The move - forced on RBS by the Government as part of its £20bn bail-out - will see the bank dramatically cut its corporate banking business. The bank is also set to embark on sweeping asset sales, which could include the disposal of parts of ABN Amro the acquisition of last year which has contributed to its current dire circumstances.
The bank, known in the City for its proud internal culture, also loses its chief executive, Sir Fred Goodwin, who will resign as soon as his replacement - Stephen Hester - can free himself from his contract running British Land. Sir Tom McKillop will retire as chairman at the annual meeting in April and Johnny Cameron, who runs RBS's corporate banking empire, is resigning from the board and is expected to leave the bank.
Sir Tom said: "We cannot help but feel some contrition". But he added that it would be "ridiculous" to link the massive capital injection by the Government in several banks with any knock-on effect on taxes or public debt. "The Government is getting a nice return on its preference shares...It looks like a pretty good deal to me," Sir Tom said.
Fintag says Anyone noticed how it was a couple of Scotmen who have saved a couple of Scottish banks? And we thought the Scots were good with money? Royal Bank of Scotland and Halifax Bank of Scotland have shattered this myth.
Of course we now have the world's first nationalised hedge fund: Greenwich Capital.
BLACKROCK ADVISES ON $9BN MORGAN STANLEY INJECTION
US-listed asset manager BlackRock has further boosted its reputation for valuing assets in difficult markets by advising Japan's Mitsubishi UFJ Financial Group on its $9bn (€6.6bn) capital injection in Morgan Stanley, which has helped the US bank's shares recover from the falls of last week.
Mitsubishi UFJ has closed a $9bn equity investment in Morgan Stanley that gives the Japanese bank a 21% interest in Morgan Stanley on a fully diluted basis, according to a statement.
Morgan Stanley shares closed 87% higher yesterday on news that the revised deal had been completed, following concerns last week that the transaction might not go through.
Fintag says Poor Morgan Stanley. Once a bank everyone wanted to work for. The Rolls Royce of Investment Banking reduced to being a penny stock. I mean look at this volatility - an 87% increase yesterday!:
PRESIDENT BUSH POISED TO FOLLOW UK WITH $250BN SEIZURE OF BANK STAKES
President Bush is today expected to unveil firm plans to use $250 billion worth of US taxpayer funds to seize stakes in nine of America's biggest banks as part of a move to stabilize the US banking system.
The proposal to use part of Washington's $700 billion rescue fund to buy bank stock is expected to be announced by the White House today. The plans follow emergency talks in Washington convened yesterday between Henry Paulson, US Treasury Secretary, and America's most important bankers including Lloyd Blankfein, the chief executive of Goldman Sachs, and John Mack, the chief executive of Morgan Stanley.
Fintag says Have you seen the Banks looking to be taken out? JP Morgan? I thought they were the saviours - turns out like Barclays they were lying through their teeth too.
I have never trusted Investment Banks and never will. Thankfully there aren't any left so its another irritant that I can ignore.
From Bloomberg: "The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan. "
GERMAN AND FRENCH GOVERNMENTS LAUNCH PLANS FOR RESCUE OF THEIR THEIR BANKING SECTORS
The German and French governments on Monday launched rescue plans to restore liquidity and inject fresh capital into their banking sectors, as part of the coordinated bailout programme agreed by the Group of seven (G7) leading industrialised countries, in Washington DC last Friday.
The German government's plan to support the country's banking and insurance sector is valued at about €500bn, while France's plan totalled €360bn.
Fintag says This makes the UK plan looking very insignificant. I wouldn't want to be German or French right now, not that I ever wanted to be German or French ever.
Only 10 months ago, Remy Trafelet was so flush that he treated about 100 employees at his hedge fund to a getaway in Venice. He and his crew spent a long, luxurious weekend at the five-star Hotel Bauer, which has Murano glass chandeliers, private gondoliers and a splendid view of a 17th-century basilica.
Remy Trafelet, a fund manager, has tried to reassure his top traders and investors.
But now, a bit like Venice, Mr. Trafelet's hedge fund seems to be sinking. His flagship fund has fallen about 26 percent this year, and Mr. Trafelet is struggling to hold on to anxious employees, as well as some investors.
Perhaps the most remarkable thing about Mr. Trafelet is that he is not so remarkable at all. Thousands of hedge fund managers like him — mostly young, mostly male and virtually all unknown outside financial circles — confront a sober reality: for now, the days of easy money are over.
Fintag says So not good news for Venice then.
DOMINIC LAWSON: IT ALL WENT WRONG WHEN WE LEFT THE GOLD STANDARD
Yesterday, I spoke to one of the leading academic figures in that movement, Professor Thorsten Polleit of the Frankfurt School of Finance. The professor is less enthusiastic than the stock market about the British Government's injection of taxpayers' money into the weakest banks. He points out that by standing behind those banks, but giving no general guarantees, the Government is encouraging savers to pull all their money out of well-run smaller institutions and switch it into badly run bigger banks.
The Government will insist that it is no time to be debating economic theories and the origins of this crisis - that we should simply do what we can to inject confidence back into the system. Professor Polleit sees it differently: "A proper diagnosis is necessary before you know the right remedy. Your Government - and others - are dealing with the symptoms but not the causes." As any doctor will tell you, that is not in the patient's long-term interest.
The slump in the property market is becoming even worse, according to a survey from the Royal Institution of Chartered Surveyors (Rics).
Estate agents sold less than one property per week each in September.
The number of properties being sold across the UK was the lowest since the Rics survey started in 1978 and was 52% lower than in September last year.
London was the region with fewest sales per estate agent, at an average of just eight in the previous three months.
And nationwide 91% of estate agents, saw prices fall over the preceding three months.
Fintag says Excellent news for labor mobility, disposable incomes and ridding our streets of real estate agents. Now with the death of the bonus culture, million pound houses will at last disappear.
I will say it again. The average salary in London is GBP25,000. How can average house prices be in excess of GBP300k? Reversion to mean is inevitable and we should be rejoicing.
So we have the media screaming at greedy bankers? Why aren't the media screaming at greedy house owners? Oh, that is because the people who run the media own houses. But not for much longer.
A good dose of negative equity and greedy middle classers in Shelter should do the trick. See? Not a very nice headline.
Not that I care. Hedgies take drawings and dividends. Bonuses are for small boys.
So many trading models have failed catastrophically over the past months that the survivors can wonder if anything other than randomly distributed luck can be relied on. Some of the worst damage has been done by, and to, the most intelligent people, who constructed the most elaborate simulations of real world dynamics. They anticipated almost everything that could happen, which, of course, justified taking on lots of leverage. After all, if you know and quantify all the possible outcomes, you don't need much capital to cushion any miscalculations. Oh well.
However, there is a subtribe of quants who are still here. Those traders of equity volatility who managed to navigate their way through the ban on financial stock short selling have finally had their day. Actually, now, many days.
A volatility trader's strategy is not based on increases or decreases in the prices of underlying stock, but on the rate of change of those prices. The central criticism of "vol" trading is that volatility is an attribute, not an asset class, and is not a stable attribute at that. In the past months, though, volatility has been so high and pervasive that it seems to have almost acquired a life, and a press agent, of its own.
Fintag says Glad to see the ban on shorting stabilised the market.
As oil prices zoomed toward an unheard of $147 a barrel this summer, it seemed every analyst prediction that oil would approach $200 was a self-fulfilling prophecy, until suddenly it was not.
Instead of $200, oil is now $80. Instead of going up, the U.S. has seen the greatest destruction in demand since the oil-shocked 1970s. Drivers have dramatically cut down on driving since November.
Soaring prices for oil and other commodities this summer have turned out to be nothing short of another classic bubble and the bursting may not be over, one analyst said Monday.
"It's just amazing that the market gets suckered into this," said analyst Stephen Schork of the Schork Report, who called the idea of $150 a barrel oil "an obscene number, a perverted, illogical number."
Latin American corporate debt is now the most stable in the world, according to a report by ratings agency Moody's, as the past three month's financial market turbulence in the US and Europe begins to weigh on the real economy.
According to figures in Moody's update on rating actions, reviews and outlooks for the third quarter of 2008, 77% of Latin America's 450 rated debt issuers currently have a stable outlook, while 76% of the Asia Pacific's 600 issuers maintain a stable outlook.
Stock market investors, even more than the average Jane, hate unpleasant surprises. Unfortunately, as last week showed, this bailout business is chock full of them.
Consider the backstop recently provided to American International Group, the beleaguered insurer. On Sept. 16, the U.S. Treasury told taxpayers to lend it $85 billion. Last Wednesday, we had to cough up another $37.2 billion to keep the company operating. As part of a new lending facility announced by the Federal Reserve Bank of New York, our stake in AIG now approaches $122 billion.
That, you may recall, is more than triple the $40 billion that AIG requested when it went on life support in mid-September. As a recent "Saturday Night Live" comedy skit about the AIG bailout put it so memorably: "Oh my God, are you serious!?! Really!?!"
Fintag says Exactly. Gordon Brown was steering the ship that run aground and is handing out life rafts and telling the passengers he has saved them. He crashed the ship but takes no blame. As someone who oversaw a "Culture of Debt" he like all the regulators have been a disgrace.
HEDGE FUNDS CONCEDE ERRORS, PROFESS OPTIMISM AFTER WORST LOSSES
Hedge fund managers, after enduring the industry's worst month in a decade, are seeking to explain to investors what went wrong and what they are doing about it.
``We clearly underestimated several things, most importantly the tsunami of redemptions that are being delivered to hedge funds as investors line up to get out of these funds as well as record outflows from equity mutual funds,'' Jeffrey Gendell, who runs Greenwich, Connecticut-based Tontine Associates LLC, wrote in an Oct. 1 letter to clients.
Fintag says Me? Grumpy? Not at all. As the West burns, hedgies rise out of the ashes. We are the new banks. Not that you will ever see me looking like a rich hedgie. Who wants to get mugged by a journalist... not me.
57 comments
anonymous said ...
Some of your sponsors are the very people you have criticised the most over the years! I saw S&P today. Why do these people pay you?
14 Oct 08 - 07:29 gmt
anonymous said ...
to anon:
because its fun to read you twit
14 Oct 08 - 09:52 gmt
Alpha60 said ...
Good analysis Fin...The government has published a study seeing a rise in crime and political extremism in the UK, and we have the loose credit orgy of the labour govt to blame for it.
14 Oct 08 - 10:58 gmt
anonymous said ...
"can you here the moron sing, no...no, can you hear the moron sing, no, no...can you hear the moron sing, i can't hear a f****ing thing no, no. no".
painful for the troll given that he said he was increasing his shorts y-day, and don't forget boys and girls, it's not costless getting a borrow ... something which moron fails to mention which leads me to believe that he is not a serious player at all.
14 Oct 08 - 11:56 gmt
MsR said ...
Oh anon 11.56, at least he's not a gutless wonder and puts a name to his comments. And he takes every slight that comes his way in good humour. That is what blogs are about. Not the random sniping of a repressed being.
14 Oct 08 - 12:31 gmt
anonymous said ...
maybe i missed something but everyone is anonymous here whether you chose to make up a monicker.... "msR", "finbar" or not. If you are so into being transparent dear, why don't you post under your real life name.
14 Oct 08 - 12:44 gmt
KONG said ...
I wouldn't crow too much just yet anon. It will take more than two days of bounce to prove moron wrong. If he had gone short when he said he was going to, he'll still be singing all the way to the bank.
As for not mentioning cost of borrows, I think we're all well aware of how the mechanics work.
According to motley fool, Icelandic banks are safe as Lloyds TSB.
14 Oct 08 - 12:55 gmt
Moron said ...
thanks KONG....anon I would strongly recommend that you go long into this rally....and talk to me in a few days.....put ur money where your mouth is mate:))
14 Oct 08 - 13:00 gmt
Jaa said ...
Its another gift from the gods.. spx at 1050..
14 Oct 08 - 13:00 gmt
anonymous said ...
err finbar that report is from feb, the world is different now, as you will know from the fact that your AUM is now two tenths of f*ck all....enjoy the dividends on that has-been
14 Oct 08 - 13:04 gmt
anonymous said ...
NOW THAT'S GOTTA HURT!
14 Oct 08 - 13:13 gmt
Moron said ...
too many bitter ppl reading this blog...we shud make a rule....no psychos allowed to read....no one who was dropped on the head as a baby or sexually abused as a child allowed to read either......:))))
14 Oct 08 - 13:20 gmt
anonymous said ...
Why all the aggression Anon? Its nice to have a healthy discussion, but I think some of your comments are a bit over the top.
14 Oct 08 - 13:21 gmt
anonymous said ...
Agreed Moron, can we also exclude people who used to get beaten up in the playground and want revenge? :)
14 Oct 08 - 13:23 gmt
anonymous said ...
Finbar and MsR firmly put in their place..nice work
14 Oct 08 - 13:24 gmt
Morom said ...
and people who can only hate...bcos they have never been loved themselves...its sad in a way...the world seems to be full of the walking dead....and an event like the credit crunch....just adds a few more to the list
14 Oct 08 - 13:25 gmt
anonymous said ...
"Finbar and MsR firmly put in their place..nice work".....we really are in a playground again are we not???????
14 Oct 08 - 13:30 gmt
anonymous said ...
moron, you seem like a nice guy and all that but you seem to be the one with problems, please stop this US pyschobabble before you destroy your reputation. suggest you don't rise to the bait.
14 Oct 08 - 13:32 gmt
Moron said ...
ok.....what reputation do i have on this blog anyway...other than being a Moron:))))))) ...love that!
14 Oct 08 - 13:35 gmt
anonymous said ...
yes for once i agree with moron re reputation...he is an idiot and should be treated as such
14 Oct 08 - 13:38 gmt
anonymous said ...
OK Anon, lets be constructive. What are your views/predictions on the market and the world? I am sure Moron/Finbar/MsR /and the rest of us would all like to know?
14 Oct 08 - 13:43 gmt
MacroHedgeBoy said ...
Sh1t banter today...........
14 Oct 08 - 13:49 gmt
anonymous said ...
come on finbar was hoist by his own petard re that dividend comment...
14 Oct 08 - 13:52 gmt
Observer said ...
Fin - proved amazingly right on predictions (credit definitely due), but could use some new ones if only because 90% of his predictions have now happened Ms R - seems nice and intelligent but doesn't know much about finance so limited value here Moron - imbecile who (especially as a confessed reader of Taleb) should not be fooled by randomness and who bleats on about the same thing all the time One Anon here - vicious
14 Oct 08 - 14:04 gmt
Moron said ...
and observer...very observant:)))
14 Oct 08 - 14:26 gmt
Tradebot said ...
Finbar : Motley Fool...didn't these go belly up in the dot com era?
I do love their tag line : "seriously good with money".
Funniest line though : "That said, the risk of either bank defaulting is exceptionally low." Great comments too....
bu aha ha ha ha ahah hahh..
14 Oct 08 - 14:39 gmt
PureGuesswork said ...
Come, come, peeps, to quote the immortal Rodney King, "Can't we all get along?"
14 Oct 08 - 14:47 gmt
Tradebot said ...
Evil beard list update :
List so far: Marx Che Guevara Osama Bernanke Archbishop of Canterbury
new additions : Taleb Krugman (saw him on CNBC. Accoding to him Brown has saved the world)
14 Oct 08 - 14:52 gmt
anonymous said ...
Tradebot - you missed Salmon Rushdie. And Harold Shipman. Pure evil
14 Oct 08 - 14:57 gmt
GalwayBoy said ...
Anyway back to the markets............as Winnie the Pooh said of Tigger "He always seems bigger because of his bounces "
14 Oct 08 - 15:03 gmt
Tradebot said ...
thanks Anon. I still can't figure out how Rushdie manages to get it on with the hottest babes. Must be the pact with the devil.
14 Oct 08 - 15:06 gmt
Moron said ...
i think the reaction to carphone warehouse results today tells us a bit abt the resilience of these markets to earnings........ladies....the sarkozy rally is a setup for.......the mother of all fades:))))
14 Oct 08 - 15:08 gmt
KONG said ...
I'm still Long guns and chickens in case this bounce starts heading south again.
14 Oct 08 - 15:31 gmt
Beaver said ...
pherhaps all the tension today is due to the Canada election
14 Oct 08 - 15:46 gmt
anonymous said ...
Fade already under way. Perhaps Moron is not as stupid as he appears at first, second and 43rd glances.
14 Oct 08 - 15:49 gmt
Moron said ...
im just a dribbling idiot....dribble dribble dribble:)))
14 Oct 08 - 15:51 gmt
GalwayBoy said ...
I suspect it has more to do with Paulson's $250bn US bank nationalisation bonanza on top of the $700bn TARP already allocated. I wonder whether GS will sign up?
14 Oct 08 - 15:55 gmt
Alpha60 said ...
@Tradebot - "evil beard list Taleb"....The guy is an absolute genius
14 Oct 08 - 15:57 gmt
anonymous said ...
@Tradebot-- number one evil beard: Santy Claus. Never brings me what I want for Christmas.
14 Oct 08 - 15:59 gmt
Moron said ...
i am actually seeing many stocks that have more than completely given up gains from yesterday and are now at new lows....dribble dribble dribble:)))
14 Oct 08 - 16:04 gmt
anonymous said ...
@GalwayBoy - GS are in, they are one of the big nine
14 Oct 08 - 16:04 gmt
anonymous said ...
Moron - ever heard the phrase "why say it in a thousand words when you can say it in one"? Verbal diarrhea is unpleasant at the best of times
14 Oct 08 - 16:06 gmt
Moron said ...
dribble dribble dribble:))
14 Oct 08 - 16:17 gmt
Moron said ...
roubini sees worst recession in 40 years, end of stock rally.....just out on bloomberg......oops!
14 Oct 08 - 17:39 gmt
anonymous said ...
great idea to get stock tips from an economist, who doesn't perhaps realise that fin mkts bottom out way ahead of the economy
14 Oct 08 - 18:02 gmt
Moron said ...
its never that simple anon...wish it was though...valuations are still not cheap against the earnings we will see for the next couple of years
14 Oct 08 - 18:13 gmt
John, London said ...
How is your fund doing YTD Fin? whats your strategy?
14 Oct 08 - 18:32 gmt
MsR said ...
My there are a lot of anons who got out of bed the wrong way or perhaps never get invited into one aren't there? Macro Hedge Boy is right.
As for putting me in my place...I suspect if we met it would be far too easy for me to verbally shred you into bite size bouchees.
14 Oct 08 - 18:46 gmt
Moron said ...
ms R is a tigress:)))...and the markets r going down:))
14 Oct 08 - 18:53 gmt
MsR said ...
It just sounds a bit like the investment banking nursery school that is Bankers Ball today...
Such bitterness is not becoming in men. These times demand good banter
14 Oct 08 - 19:01 gmt
A Nonny Mouse said ...
Ms R - good legs. Yet to see any brains though
14 Oct 08 - 20:07 gmt
MsR said ...
Nonny Mouse...shame I can't even say that about your legs..Still I've managed to write eight books, consult to the board of a global FMCG company and my personal share portfolio (bought by me three years ago) is barely down.
And you?
14 Oct 08 - 20:23 gmt
Ms R said ...
I went to cash without a man having to tell me how.....at the right time too...
Cindy the Lap Dancer (formerly known as Ms R)
Anyway here in Australia it's morning, the sun is shining...time to go
14 Oct 08 - 20:47 gmt
A Nonny again said ...
Oh please - I am a far bigger man than to be so crass as to list my achievements here - and besides, they are modest as are most peoples, including yours. Get over yourself. But - I hope you enjoy the Aussie sun.
Now, I recommend everyone who comments on this good blog be more spartan in comments tomorrow (Moron...) and be nice to each other.
14 Oct 08 - 21:37 gmt
Cindy the Lap Dancer formerly known as Ms R said ...
Not so big that you can't insult me..I hope you are nicer tomorrow and don't make flip remarks like that.
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