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
Let us assume that hedge funds manage USD2 Trillion (a number banded around by many commentators). If 25% of these assets were redeemed by cash hungry investors, as is quite probably the case as cash really is king , then USD500 billion sales orders would hit the markets immediately. Imagine that. The markets would tank like nothing you have ever seen before. The reason it hasn't happened is because many funds have been forced to gate or close to halt redemptions. This is good news. For the time being.
Right now, that is where we are. There are investors chomping to get their investments back. However, as investors tried recently to claw open RAB Capital's closed special situation fund, they soon realised that liquidating meant realising considerably less than if they hung on in there with the losses accrued to date. So they have left it closed until better liquidation times appear. Question is how long will it be for these better times to appear? 3 years? 10 years? 20 years?
As much as bailing out and re capitalising banks is helpful (where did the tier 1 capital go, that's what I want to know) the real fear is this 25% redemption happens at once. The systematic risks are considerable. Ignoring the current plight hedgies are facing of deleveraging as lenders ask for their loans back, mass redemptions are potentially much more frightening than saving a few banks with bad debts.
If you think the central bankers have saved the world you are wrong. They have saved a run on deposits, that is for sure, but cushioning us against a 1930s depression then they have a long way to go. Locked up funds are saving us all from a serious meltdown.
We should thank the lawyers who helped the hedge funds lock in their assets. Without them, we would be facing an even bleaker future. If other lawyers try an muscle in to open up these locked assets, then you can blame them for bringing down your livelihood. But they won't.
So my award to saving the planet goes to Simmons & Simmons who pioneered many of the hedge fund structures and tight ass fund prospectuses.
Remember hedge funds provide most of the markets liquidity. Given investment banks have given up and turned into loans and deposits house, hedge funds are all we have left and as usual, hedge funds are holding it all together. Fear not for we are your protectors.
Yesterday's sell off demonstrated how quant models are struggling with volatility and margin calls are forcing selling. I will say it again, but the distortion by governments has made the situation much worse than if they had left it alone to sort itself out.
GORDON BROWN WANTS TO REWRITE THE RULES OF CAPITALISM
The Prime Minister wants dozens of world leaders to meet for a major one-off summit where they would rewrite the rules of international capitalism that have stood since 1944.
The foundations of the current world financial and economic system were laid at Bretton Woods in New Hampshire in 1944.
Led by Franklin D Roosevelt, Western leaders created the International Monetary Fund, the World Bank and laid down common standards for open markets around the world.
Calling for "very large and very radical changes," Mr Brown said he was seeking nothing less than "a new Bretton Woods."
Fintag says Have you noticed how Gordon "Once a socialist, always a socialist" Brown continually blames sub prime and the Americans for the mess we are in? Sub prime did kick start the credit crunch, but this was only part of the systematic problem that Greenspan, Clinton, Bush and Bernanke caused by allowing the markets to absorb cheap debt without any checks and balances. It was like handing out heroin to a bunch of school kids and supplying the stuff for free and charging for it.
Brown knew nothing else. He likes to spend other people's money and has never raised any revenue (apart from tax) in his life. This time next week when the middle classers are starving and homeless, he will be seen as the Wicked Witch from The West.
Not that I need worry for I too have socialist credentials:
KRAVIS SAYS PRIVATE EQUITY PARTLY TO BLAME FOR CRISIS
Private equity groups must shoulder some of the blame for the current financial crisis and should use the aftermath as an opportunity to change the way the industry operates, Henry Kravis, a founding partner of Kohlberg Kravis Roberts, has said.
Speaking at a keynote address at the Super Return Middle East conference in Dubai on Wednesday, Kravis said: "It is clear that everyone bears some blame for the crisis.
"All of us need to accept responsibility for the damage done to the free market system. We confront the most turbulent time in the markets since the 1930s. The current situation is terrible but not as bad as then, when there was zero credit available anywhere."
Fintag says Yeeehah! Pirate Equity admits it was at fault. A good day for leaking bad news. As regular readers know, I have blamed the Pirates from day one.
times says " Markets slump as the world prepares for long recession "
Compounding terrible economic news, budget officials announced Tuesday that the federal deficit has soared to a record $455 billion, injecting new urgency into the closing days of the presidential campaign about spending in Washington, including efforts to stem the financial disaster.
The final accounting for fiscal 2008 produced a larger shortfall than had been projected, reflecting the start of federal efforts to address the economic emergency. It is certain to become a significant issue in the campaign, confronting the candidates with new questions about their growing slate of proposals for new spending and tax cuts at a time when red ink is surging.
The White House, attempting to portray the deficit number in the most positive light, said that the red ink, measured as a share of the economy, equaled 3.2% of the gross domestic product -- below the record of 6%, set in 1983 after President Reagan's tax cuts were implemented.
Fintag says GW Bush. What a legacy. Yes, it is only 3.2% of GDP but this deficit doesn't include the bail out fund so we can expect when McCain gets in (I still think he has an outside chance) the mess will be unbearable. A large debt and a country in decline. Nice.
Bank of New York Mellon (BNY Mellon) has been selected by the US Treasury to provide a broad range of services to support the government's Troubled Asset Relief Program (TARP) under the Emergency Economic Stabilization Act.
BNY Mellon will provide the accounting of record for the portfolio, hold all cash and assets in the portfolio, provide for pricing and asset valuation services and assist with other related services. It will also act as auction manager and conduct reverse auctions for the troubled assets through BNY Mellon's securities servicing businesses.
Fintag says Of course using a nationalized financial institution seems the most logical solution. It is also extremely dull so here is a clip about the new MacBook.
IT'S 3 P.M. ON WALL STREET. THE HUNGRY BEAR IS ON THE PROWL.
Traders rushed to get in their last orders of a disastrous day at the New York Stock Exchange.
On Wednesday, in what has become an almost daily occurrence, the stock market lurched at 3 p.m. — this time, down.
What had been a bad day ended as one of the worst in history, with the Dow Jones industrial average plummeting 733 points, or nearly 8 percent.
The late-day move — the Dow shed nearly 400 points in the last 45 minutes of trading — mirrored the market's pattern over much of the last week. On Friday, the Dow plummeted more than 500 points in the last hour of trading. On Monday, it soared about 300 points.
Fintag says I know my models like to look at the intra day volatility before spewing out sell orders in the afternoon. Not sure how others work or whether this is relevant.
The embattled red squirrel - feared to be facing extinction in England and Wales within 25 years - may have developed a last-gasp trick to save it from a deadly virus being spread by its grey American cousin. Wild red squirrels have developed an apparent immunity to the squirrel pox virus, which was killing off the last their remaining communities in England and Wales, as well as threatening the much larger native squirrel population in Scotland.
A survey of the corpses of more than 500 red squirrels collected for laboratory analysis found that eight had been exposed to the squirrel pox virus but died of other causes. One captive red squirrel had also survived exposure to the virus, scientists found. They believe the presence of antibodies to the virus is strong circumstantial evidence that some wild red squirrels have developed a natural immunity to the disease - a fact which could lead to the development of a squirrel pox vaccine.
Fintag says Red is the new color for 2008. Red bloomberg screens, red socialist central bankers, red unemployed faces and red squirrels.
ABOUT 20% OF ASIA HEDGE FUNDS PROFITABLE THIS YR-UBS
About 20 percent of Asian hedge funds have managed to make a profit so far this year with the industry's performance ranging from minus 40 percent to plus 20 percent, the head of UBS Asian prime brokerage said on Thursday.
Fintag says 1 in 5. That ain't too bad. And the rest are mostly outperforming the S&P 500? Not really. Hedge Fund performance is as volatile as the Dow.
To avoid another Lehman style bankruptcy, the Fed has basically guaranteed, well, the worldwide banking system. The problem is that an “unlimited guarantee requires unlimited access to financing.” No one, not even the Fed, has unlimited access to financing. The Fed only has unlimited access to a printing press. If the dollar loses all its value due to hyperinflation, it won't be worth much to anyone as insurance against loss.
Fintag says What is all this about? Nobody wants to take responsibility and Mummy Bernanke says don't worry children I will bail you all out. This is why socialism fails. Everytime. Why? They run out of money. Our tax payers money.
No news is good news for hedge funds these days, but everyday brings more news. The latest instance of unpleasant information for the industry are the enormous withdrawals suffered by hedge funds in September.
Hedge fund indices have already shown last month to be among the worst ever in terms of performance; the latest TrimTabs Investment Research data shows it was just as bad—if not worse—in terms of clients fleeing. Investors yanked at least $43 billion from U.S. hedge funds in September, and TrimTabs says worse is still to come.
Fintag says ...and would have been much more if most of the funds weren't closed. Phew!
financial times says " Hedge funds call for intervention on Lehman "
Citadel Investment Group's biggest hedge fund fell as much as 30% this year, because of losses on convertible bonds, stocks and corporate bonds, reports Bloomberg. Kenneth Griffin, who founded Chicago-based Citadel in 1990 and holds 30% of its $18bn of assets in cash according to S&P, warned in a letter to investors this week that returns for the $10bn Kensington Global Strategies Fund may swing wildly amid volatile market conditions. Griffin said his main mistake was not being pessimistic enough about the extent of the financial crisis, which began in 2007, a year he described in his letter as “the most successful” in the firm's history. Kensington climbed about 30% in 2007. Kensington's loss, more than double the decline of the Credit Suisse/Tremont Hedge Fund Index, may dent Griffin's reputation as a consummate risk manager with no patience for traders who can't make money. Kensington's only annual loss was a 4% drop in 1994.
Fintag says Someone commented that Citadel were the new Goldman Sachs. Really?
bloomberg says " Concordia, GSA Capital Shut Asian Offices As Markets Slump "
But publishers here are resolutely optimistic about the fate of books in a recession - one agent said that "books are good in the good times, and great in the bad times". In the words of Richard Charkin, former Macmillan chief, now Bloomsbury executive director, "banks may crash, derivatives flounder, hedge funds wither, dotcoms rise and fall but somehow or other writers, publishers, booksellers, literary agents, publishing consultants and old bookish friends always manage to congregate for the autumnal bunfight known by the single word, Frankfurt".
Fintag says Long books or long Kindle? Mmmmm.
IF YOU THINK THIS YEAR'S BAD FOR JOB CUTS, WAIT 'TIL 2009
As global stock markets rally on the news of the European bank bailout plan, financial markets professionals are still wary about their futures. The global economy is almost certainly in recession, and prospects for business across the board looks grim. And if 2008 has been a difficult year for jobs, 2009 is shaping up to be even worse.
Over in London, UK think-tank the Centre for Economics and Business Research (CEBR) has said that City job losses are likely to increase to a figure of 34,000 in 2009 (compared to the 28,000 estimate for this year). The job losses are expected to cut the number of people employed in London in the financial markets industry to 291,000, the lowest level since 1998. CEBR senior economist Richard Snook said that the credit crunch 'has spread through global markets like a virus and threatens to plunge the world into recession. We therefore do not expect a quick return to the levels of employment and prosperity that the City saw in 2006 and 2007'.
Fintag says Remember my jobs@risk pictures from last year? Let me show how close I was:
The always estimable Chris Addy takes his hatchet to provisions of the Emergency Economic Stabilization Act 2008 (a/k/a The $700 Billion Bailout Bill) that ostensibly eliminated the ability of US hedge fund managers, among others, to defer taxes on incentive and/or management fees earned in their offshore funds for up to 10 years.
Unsurprisingly, the slowly-closing loophole will trigger a boom in the construction of new bypasses; PricewaterhouseCoopers' bulldozer fleet is revved and ready to go. Even less surprisingly, according to Addy, the costs of fund restructuring required by the PwC Route, “will be charged to the fund, and paid by investors.”
Fintag says While there are offshore tax havens, savvy lawyers and no regulation, us hedgies can do whatever we please like true pioneering cowboys of the west.
21 comments
JM said ...
don't forget this week is options expiry ....so gamma and gaps are inevitable
16 Oct 08 - 07:03 gmt
hotflash said ...
Hedge funds facing worldwide bank margin calls aint good for stocks.
16 Oct 08 - 07:59 gmt
anonymous said ...
Stabilising financials and senior credit markets has passed the buck: to junk credit and to the equity market.
Huge falls in world stock markets are the first realisation of that. It’s a credit crisis afterall, and Equities are the the victims.
16 Oct 08 - 08:10 gmt
anonymous said ...
So $500bn of redemptions then.. it will be bad, but will it be as bad as you make out fintag? I thought most funds keeping at least 25% - 30% in cash or short dated t-bills?
16 Oct 08 - 08:30 gmt
Finbar said ...
Yes, the cash argument is does lighten my analysis. What was I thinking at 5:30 this morning ...
16 Oct 08 - 09:06 gmt
anonymous said ...
At least your favourite Swiss banks have capitulated....
16 Oct 08 - 09:54 gmt
Tradebot said ...
test...is this working?
16 Oct 08 - 09:55 gmt
Tradebot said ...
bang on, anon @ 7.59! Also central banks effectively guaranteeing short term unsecured lending, they are interfering with the credit pricing mechanism. No good come out from it…bit like that idiotic policy of restricting short selling. Specs were shorting banks because they were rotten to the core. Did banning shorts stop the UK banks crashing out from the game? Did it?
16 Oct 08 - 09:58 gmt
Tradebot said ...
Lower volumes + taking out forced buyers of the market = more volatility. Are you listening to me Hector? Is that a beard you are growing?
Rule #1: You don’t fk around Mr Market, he always gets his due.
16 Oct 08 - 09:59 gmt
Global Macro Bear said ...
Citadel has 30% cash and is down 30%. I guess they had 20% cash to begin with and have 30% cash now. Not good. What the hell was the other stuff that's down 40%-50%?
How much further can this drop? Let's just say that there are NO buyers in the credit markets, even now that the equities markets have caught up.
16 Oct 08 - 10:07 gmt
Waterbread said ...
question: are we headed for inflation or deflation?
16 Oct 08 - 10:17 gmt
anonymous said ...
How long before the US dollar is worth nothing?
16 Oct 08 - 11:36 gmt
sarah p. said ...
>> question: are we headed for inflation or deflation?
Exactly, we're headed for inflation or deflation.
16 Oct 08 - 11:40 gmt
Tradebot said ...
we are heading for both inflation and deflation.
Stuff you need to buy will be going up and your earnings will be going down.
16 Oct 08 - 11:49 gmt
GalwayBoy said ...
Stagflation on a global basis I think
16 Oct 08 - 12:03 gmt
Dan said ...
So what is the new solution to the anti-deferral law?
16 Oct 08 - 17:47 gmt
david cameron said ...
blimey mr taggit i thought you went to eton , not some polytechnic.
16 Oct 08 - 19:49 gmt
anonymous said ...
whats the interest in closed-end funds Fintag?
16 Oct 08 - 19:56 gmt
david cameron said ...
i believe there will be a solution to the anti-deferral law, sometime in the future.
16 Oct 08 - 19:57 gmt
anonymous said ...
You really have to be a bibliophile to know and understand FinTag's flash allusion to KINDLE....
like it? don't like?
LIKE IT!
16 Oct 08 - 21:25 gmt
Dan said ...
I thought Kindle referred to the burning fire AMZN is going to have to use to "lose" all of the failed product and collect the write-down.
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