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
Hank Paulson has confessed to being addicted to the CDS market. He tells us that the bail out fund is working because the default spreads on banks are narrowing. CDS's are unregulated pseudo-insurance contracts that allow counterparties to bet on the default of an asset such as a bank or country.
The CDS market is signalling that Lithuania, Ukraine, Iceland, Russia, Pakistan and more frightening Italy are all on the verge of default. Governments can bail out (in other words redistribute our taxes) if they have the money - if not who bails them out? The IMF of course. It bailed out the UK in 1976. In the case of the European countries like Italy then it could mean France and Germany bailing them out. I don't think they will like that. But then again, California is bankrupt and the rest of the USA has to bail it out so this is not unusual. Friends need to help each other out.
The volatility in the markets is due to the obsession of the CDS spreads. As an unregulated market this is open to serious abuse so why does Paulson and the rest of the world take this market so seriously. The CDS market has forced UBS into the Hall of Shame, and forced Lehman into Chapter 11.
Mind you, the CDS market is doing a better job than the snail like CRA's.
The head of one of America's biggest hedge fund industry groups has written to Mervyn King, Governor of the Bank of England, warning that a failure to free up an estimated $70 billion in assets frozen in Lehman Brothers' could trigger "systemic" losses.
Richard Baker, the head of the US Managed Funds Association (MFA), has warned delays could be “disastrous for UK plc”.
The plea comes on the eve of a meeting between the administrators of Lehman Brothers International (Europe) and regulators.
The former Congressman believes that the handling of the wind-up of Lehman Brothers and the carving up of its remaining assets is adding new uncertainty to already panicky global markets and releasing the bank's securities would give the market “a much needed boost of liquidity and confidence.”
Fintag says PWC are contributing to the death of many hedgies. With assets locked up and exchanges demanding margin, they are having to sell other assets to fund them. My letter arrived the other day and once I have filled this in, PWC will have the horrendous task of reconciling my claims with hundreds of others. Is it true USD65billion is stuck at Lehman?
Once every account is agreed can they release the assets. This could take many months, if not years. If one hedge fund fills the form incorrectly, by a couple of cents or there were arguments with Lehman about a misbooked trade, it will prolong the agony.
Switzerland moved to restore confidence in its banking system on Thursday, agreeing to fund a vehicle that would take on most of the toxic debts held by UBS and injecting SFr6bn (€3.9bn) to help recapitalise its former national banking champion.
The intervention in UBS came as its cross-town rival, Credit Suisse, raised SFr10bn from strategic investors including the Qatar Investment Authority.
Fintag says Wow. This is over twice what UBS had already written off. The Useless Bank of Switzerland were lying just like the rest. Welcome to the Hall of Shame.
Highland Capital, a long-established hedge fund manager based in Dallas, is closing two of its most famous funds, the latest victims of the worst period in the industry's history.
Amid heavy losses and vicious market conditions, Highland told clients that it would liquidate its Crusader and Credit Strategies funds, which had a combined $1.5bn of assets between them.
At its peak, the Crusader fund alone had assets of $3bn, but the turmoil in the financial markets and the introduction of restrictions of short-selling have contributed to spiraling losses. With conditions deteriorating in recent days, creditors seized some of its assets the funds had put up collateral. Barclays Capital, investment banking arm of the UK banking group, seized $642m of leveraged loans from Highland on Wednesday and was offering the debt for sale in an auction yesterday.
Fintag says I was kindly sent a portfolio of hedge fund investments yesterday owned by a well known wealth office. It was frankly quite unbelievable. The average 2007 returns were I guess mid 20%. Year to date, 2008, we are talking about mid - 25%. And these were big boy hedge funds.
What makes it worse, as I was rightly corrected yesterday, many hedge funds are sitting on 30% cash. These negative returns make it even worse.
Makes me feel really sick but as Madonna said yesterday on stage about her husband, who is "emotionally retarded", hedgies are never emotional. Guy Ritchie should start a hedge fund. But he shouldn't call it Ritchie Capital. That is already taken but maybe in the pile of dead and buried managers very soon so the domain name maybe up for sale soon.
telegraph says " Gradient close to collapse as hedge funds feel heat "
Performance rather than brand name will be the test of survival It may be premature to write the epitaph for funds of hedge funds, but industry practitioners are giving them a less than glowing prognosis after losing 11% this year.
Fund of hedge funds managers have historically decided who gets 40% of the industry's $1.9 trillion (€1.4 trillion) assets to manage, ideally differentiating between good hedge funds and also-rans.
However, lately they have been besieged on many fronts.
Fintag says Given 60% (source: a wild guess) of hedge fund investments come from Fund of Hedge Funds, this is a pretty obvious statement. We don't deserve the money. A large chunk of managers should not be in business and that includes me - I am down across the board 11% YTD (although still outperforming the S&P) and most of this drawdown occurred in September. I had one lunch too many and got whip lashed in the volatility. Despite that I am 45% cash and hope to get this to 70% by end of November.
Unlike this poster, Cash is King:
p.s. If you look closely you can see my nikon camera in the reflection. Nice photo eh? Maybe I should become a pap? Competition for jobs is tough out there.
Hedge fund managers are paranoid. And they are right to be. The other day I had lunch with a senior financial official whose view of hedge funds was simple. “They were a con. The returns were all due to leverage. And now that the leverage has gone everyone will see they were a con.”
You may disagree with this analysis. You may be convinced that for some hedge funds at least the returns were down to skill. You may argue that their role in the credit crisis has been at worst neutral. But you cannot deny it is pretty worrying for hedge funds when this is the view of a top regulator.
And my lunch companion is not alone. According to an e-mail from Dick Fuld, the former chairman of Lehman Brothers, quoted by The Wall Street Journal, Hank Paulson, the US Treasury Secretary, said he wanted to “kill” the bad hedge funds and “heavily regulate the rest”. The Italian Finance Minister has promised to put the extermination of hedge funds on the international agenda when Italy takes over presidency of the G8 in January.
London has suffered a setback in the battle with Wall Street for leadership of what remains of the financial world as hedge funds shift billions of dollars to New York banks because of worries about the British bankruptcy regime.
Ironically, assets are being moved because of the failure of Lehman Brothers, a US investment bank. But it is the problems being faced by hedge funds and others with money stuck in Lehman's London subsidiary that are causing the concern.
Fintag says Where is my green card?
FED TO MEET WITH CREDIT-DEFAULT INDUSTRY ON CLEARINGHOUSE TODAY
The Federal Reserve Bank of New York plans a third meeting today with the credit-default swap industry, as it presses for a central clearinghouse for the $55 trillion market, people with knowledge of the talks said.
Fed officials summoned dealers and exchanges to the gathering after meeting twice last week, according to the people, who declined to be named because the discussions are confidential.
Fintag says Perhaps they are looking for some inside information to see which insurance company to bail out next or which country they should invade.
The move has pushed some funds closer to the brink and triggered yet more havoc in global stock markets.
The bankers say that the wild swings in stock prices across the globe has radically increased their risk, forcing them to demand as much as five times more collateral from the hedge funds.
The extra demand has left funds scrambling to find the extra cash or collateral, forcing many to sell other positions to fund their more important ones.
One hedge fund said: "One of our positions is a blue chip firm for which we have normally put up just 5pc cash [while the bank funds the remaining position]. Yesterday we got a call saying we had to put up 50pc margin. We're already tight on the line and had to quickly sell stock to fund it. And this was just one position."
Fintag says Given many of the Prime Brokers are now state owned, what would you expect? Everything owned by the state is more expensive to the customer. I think a bunch of hedgies should get together and create their own prime brokerage business. Seriously. I am up for it.
PERRY CAPITAL BRACES FOR 1ST DOWN YEAR, CUTS STAFF
Even Wall Street's biggest superstar investors are being rocked by the tumult ravaging the markets.
Renowned New York hedge-fund honcho and political powerbroker Richard Perry is facing down his first losing year in hedge-fund investing since launching his fund some 20 years ago.
The ex-Goldman Sachs billionaire manager of Perry Capital is shrinking his staff and battening down the hatches at his firm, which boasts tony digs in the General Motors Building.
His flagship fund Perry Partners International recorded a third-quarter loss of 6.13 percent, bringing his year-to-date performance down 9.32 percent, according to people familiar with the matter.
The hedge fund, which has reduced its equity holdings amid the stock market's meltdown, trimmed staff recently, including professionals Jon Cheng, a retail stock manager, and Ted Martin, a risk-arbitrage portfolio manager, according to industry newsletter Hedge Fund Alert.
To be sure, Perry Capital is not the only big-name hedge fund getting dinged by the markets.
Fintag says It is never ending. Don't worry we haven't reached the end of the year yet. Mind you if we are all sitting on cash, we aint gonna make up the difference. But we will try. I wonder when I can unfreeze my cash though?
Steps by central banks to provide funds to cash-strapped institutions have not solved the problems of these entities, ECB Executive Board member Jose Manuel Gonzalez-Paramo said. And he added: (see text) In order to avoid (?????) financial stability and to ensure appropriate financing conditions, the Eurogroup has complemented the concerted actions on deposit guarantees with far-reaching measures in two main areas: (1) funding guarantees, and (2) capital injections.
Fintag says Interventionists never win. We are all the losers. What do governments know about running a bank? Nothing.
JOBS - 'THE PROBLEM IS THAT MOST OF THE SHIPS ARE SINKING'
UK think-tank the Centre for Economics and Business Research came out earlier this week and predicted that 28,000 'City' jobs would go this year, followed by 34,000 in 2009. And now the Office of New York City Comptroller William Thompson has said that the City may see 165,000 jobs go in the next two years, including an additional 35,000 in the financial markets industry.
Many investment banks, asset management firms and other financial institutions have sat on their hands over the last few weeks, as they focused on their very survival. Attention is now thought likely to be trained on headcount, and getting it back in line with future revenues projections. With M&A in the doldrums and some business lines such as equity capital markets back to 2003 levels, the job axe is now likely to fall with a vengeance in the weeks leading up to Christmas.
Fintag says Carnage.
HEDGE FUND GROUP APPOINTS BOARD CHAIRMAN AND DIRECTORS
Hedge fund trade group the Managed Funds Association has unanimously reelected Eric Vincent, president of Ospraie Management, as board chairman for a one-year term amid a difficult environment and after one of the worst months on record for hedge fund performance.
In addition, MFA's membership elected seven new directors to two-year terms: Putnam Coes, chief operating officer for Paulson & Co.; Samuel Cole, chief executive for BlueMountain Capital Management; Mark Horowitz, chief executive and general counsel for Glenview Capital Management; Scott M. Lawin, managing director for Fortress Investment Group; Jeffrey L. Lomasky, chief financial officer for Cerberus Capital Management.; John MacFarlane, chief executive for Tudor Investment; and Joanne Pace, chief executive for Morgan Stanley Investment Management.
The head of the Financial Services Authority has warned the City that the era of light-touch regulation is over.
Lord Adair Turner told the Guardian that the FSA had tried to regulate big banks "on the cheap" and would recruit top City experts to change that.
But he told the newspaper that while the approach would be "heavier", it would also be "intelligent and focused on where the risks really are".
He also said there would be a global recession, but not a major depression.
"There is no chance of a 1929-33 depression. We know the lessons and we know how to stop it happening again," Lord Turner said.
Fintag says Typical. They were useless during the boom years and will be useless during the bust ones. It is too late. They didn't regulate and should be replaced. The UK has 3 regulators and its a mess. The US has about 8. You need one in each country that seeks the same guiding principal approach. Then the rest of us will work in countries where regulation is not needed.
Hedge Funds on the whole are not regulated and don't need bail outs. We are survivors. The banks are losers.
ft says " Hedge funds suffer from vicious cycle of sell-offs and withdrawals "
The global credit crisis took a fresh turn on Thursday as Hungary and Ukraine approached international institutions for support in an effort to avoid following Iceland into financial turmoil.
The moves came as figures showed that US industrial production plummeted 2.8 per cent in September, its largest monthly decline since 1974, though the decline was aggravated by hurricane disruption and a strike at Boeing, the aerospace company.
Fintag says I hope the IMF is well funded as it is going to be very busy.
31 comments
anonymous said ...
Positions as at 7:56am, pretty accurate! PwC have really messed this Lehman administration up, what a bunch of bozos. I may terminate my audit with them out of spite
17 Oct 08 - 07:44 gmt
anonymous said ...
Good morning, I was surprised to read that you are -11% ytd. This performance seems at odds with your "the end is nigh" view of the world for the last 18 months. September "whip lashing" aside I would have expected you to be significantly up on the year. Please explain.
17 Oct 08 - 07:51 gmt
Scared Little Boy said ...
Insurance companies are surely going to tank either now or in earnings season when everyone realises the trouble they are in?
17 Oct 08 - 07:57 gmt
anonymous said ...
Goodmorning Fintag. You are my favourite read. Have a great weekend!
17 Oct 08 - 07:59 gmt
KONG said ...
Just saw David Cameron at Bloomberg. He gave a good chat about fiscal responsibility and got a few blows in at Broon's expense. They could have laid on a better spread though- times are tough
17 Oct 08 - 09:06 gmt
Oh Boy said ...
Oct 16 Bloomberg: Ambac and other bond insurers are working on a plan to send to the U.S. Treasury that would enable them to 1) sell troubled assets to the government. The companies also may present a proposal next week that would allow the insurers to 2) guarantee some assets with government backing. Ambac and industry is 3) not asking for equity stake. •Similar proposals are circulating for helping out systemically important hedge funds.
17 Oct 08 - 09:10 gmt
KONG said ...
So the Italian Finance minister wants our blood. Shouldn't he be more worried about Italy being bankrupt by the time he gets to host the G8? Isn't the only reason Italy is still in that club because the others like the conferences there?
17 Oct 08 - 09:15 gmt
anonymous said ...
Fintag great comments but very depressing articles. Insurance companies, bond insurers, hedge funds, countries, all big banks and homeowners who next needs a bailout!!!! There is not a enough MONEY in the world to give out for all who are asking for it! Can't anyone FAIL!!!!
17 Oct 08 - 09:18 gmt
anonymous said ...
Remember when you could buy Guaranteed products? No more I am afraid. Nothing is guaranteed anymore ...
17 Oct 08 - 09:54 gmt
anonymous said ...
I think at the moment most products are guaranteed to do pretty badly
17 Oct 08 - 09:59 gmt
Dan said ...
How do you define optimism?
A banker who irons 5 shirts on sunday
17 Oct 08 - 10:02 gmt
Dan said ...
These markets are worse than a divorce: i've lost more than half my net worth and i still have my wife.
17 Oct 08 - 10:03 gmt
Moron said ...
just keep shorting.....and don't believe these headfake rallies.....the problems out there are severe.....u think this is bad....give it another year....u aint seen anything yet....that said...i have a sneaky suspicion we r gonna see a headfake year end rally of some magnitude
17 Oct 08 - 10:24 gmt
Breadwater said ...
how do I protect against hyperinflation?
17 Oct 08 - 10:35 gmt
anonymous said ...
i wonder where moron is ytd?!
17 Oct 08 - 10:42 gmt
Alpha60 said ...
Fin - Any idea who dumped all that gold on the mkt y/day...my longs took a pasting
17 Oct 08 - 10:53 gmt
Jaa said ...
careful with the +Gold.. fair amount of leverage and investors scrambling for cash.. evrything must go ..$600 is the target..
17 Oct 08 - 11:00 gmt
Shane Warne said ...
IMF is meant to be very well funded. World Bank also, as they've been so quiet of late. About to all change but it will be developed as well as EM to save this time!!!!
17 Oct 08 - 11:08 gmt
Tradebot said ...
don't get married to yesterday's positions Moron... me thinks the sell off is done for 08. Risk appetite is returning, albeit slowly.
The bear market shall resume with vengance in 2009.
17 Oct 08 - 12:28 gmt
Moron said ...
could be.....i am slowly coming around to that view as well....it might just be the time for a Santa Claus rally
17 Oct 08 - 12:40 gmt
cockyspiv said ...
a banker ironing??
surely this is outsourced?
17 Oct 08 - 12:54 gmt
Jaa said ...
sell-off has not concluded.. 780ish on spx ..
17 Oct 08 - 13:31 gmt
Raynor said ...
-11% is an outstanding performance. As a nimble manager who has been net short for the past 15 months, with little gold and oil exposure, I have struggled to remain ever so slightly positive.... it has been a highly unpredictable and manipulated market. I'm sure the S&P is moving towards -40%. All things considered, job well done.
17 Oct 08 - 13:56 gmt
Tradebot said ...
yeah, i'd take -11% return, well respectable return for anything that is actively managed. Kudos.
No, i don't think we have seen a bottom yet as it needs to be total long liquidation a'la "let's not ever invest in equities ever again" long-only funds/mom pop investor type sell off. That is still in the cards, but in not in 2008.
17 Oct 08 - 14:22 gmt
Tradebot said ...
oh the reasons for my newfound tactical bullishness : this sell off was all about systmatic risk with some deleveraging to add vol. Further more everybody realised we are going down for recession. 2/3 of these factors are now priced in...and libor has started to go down now too. Also we have Moron ready to jump into the up leg when it kicks off...
17 Oct 08 - 14:27 gmt
Moron said ...
the one thing I have learnt.....don't fight Santa Claus and his rallies....rational or not...fundamentally....we are still very overvalued....just wait for the earnings u will see in 09 and 010!......................but....its time to be merry.....Paulson, Bernanke and Rudolph (the reindeer) are abt to temporarily give us a good rally:)))
17 Oct 08 - 14:41 gmt
anonymous said ...
getting all your beards lined up!
17 Oct 08 - 15:34 gmt
Moron said ...
How much am i up ytd well how cud i possibly b up double digits when im just a dribbling idiot ho ho
17 Oct 08 - 18:59 gmt
anonymous said ...
Very democratic of you to take the train Fin. Nice cufflinks by the way. I can see those as well as the camera in the reflection.
18 Oct 08 - 02:18 gmt
anonymous said ...
Curious about the transition from socialism to capitalism in your life, Fin. Any watershed events on the way?
18 Oct 08 - 14:29 gmt
anonymous said ...
Mr. Taggit: What is the status of derivatives and who needs to blow up to blow down the system?
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