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
Time is tough for the last capitalist players in the financial markets, but thankfully the media are more fixated about domestic issues, ING being state controlled and Jim "Long Only" Cramer being made to look stupid - if that was at all possible.
Goldman, surprise surprise, are hoovered in to help sort out the banking mess that they helped create and having let Lehman go we are all waiting for tomorrow's great CDS unwind.
Warning Sorry about today's newsletter-lite. I upgraded to Virgin Media at the weekend and my fiber optic broadband is behaving like a dial up modem. [Editor: Excuses: When are you going to stop drinking?]
While the UK Government turned to a group of bankers from Credit Suisse and Deutsche Bank to advise on the bailout of its banking industry, the US administration appears to have relied on the Goldman Sachs alumni who have been drafted in by Treasury Secretary Henry Paulson, Goldman's former chairman and chief executive.
In July, Ken Wilson, chairman of Goldman Sachs' financial institutions group, temporarily left the firm to advise Paulson on how to resolve the country's banking crisis. Wilson was waiting to go through airport security when President Bush personally called to offer him the job, which is unpaid until January 1, according to the Wall Street Journal...
Fintag says Given Goldman have been gaining an edge over everyone else during the boom times, it makes sense for them to be part of the bail out. I hope the next incumbent to the whitehouse stops this nepotism as it truly stinks.
DUTCH GOVERNMENT TO INJECT €10BN OF FRESH CAPTIAL INTO ING SAVINGS BANK
The Dutch Government announced last night that it would inject €10 billion (£7.8 billion) of fresh capital into ING, the Dutch savings bank with more than a million British customers.
The details of the deal, which was agreed over the weekend, were announced last night by Wouter Bos, the Finance Minister, Nout Wellink, the central bank governor, and Michel Tilmant, the chief executive of ING.
The Government will buy €10 billion of subordinated bonds in ING using a €20 billion fund set aside for fighting the current crisis. The deal could leave the state with as much as an 8.5 per cent stake in the Netherlands' largest bank and it will have two of the 12 seats on its supervisory board.
Unlike rescued UK banks, ING will be free to pay dividends while it owes money to the Dutch Government. However, the bank said it was scrapping its final dividend for 2008 and executive bonuses because of the “exceptional circumstances”.
Fintag says I cannot keep up and my Hall of Shame is out of date already. ING have a huge 20+ levered balance sheet thanks to their obsession for Real Estate. I am surprised they needed so little.
Any bank that has offered over the odds savings rates in the style of Icelandic returns needs to be watched.
I received another invitation to open up a credit card, via Capital One, at the weekend. Interest rate is a bit high though ...loan sharks of course.
THE historic volatility in the financial markets has raised important questions about the lack of meaningful regulation of financial instruments known as credit-default swaps. The $85 billion government rescue last month of the insurance conglomerate American International Group, for example, was needed in large part to protect those who held A.I.G.'s credit-default swaps and risked crushing losses if those instruments weren't honored.
A.I.G. had issued $440 billion in credit-default swaps — which are like insurance contracts on bonds and other assets that are meant to pay off if those assets default. But as markdowns on A.I.G.'s investments in subprime mortgages led to downgrades in its credit ratings, the holders of the credit-default swaps demanded more collateral, which A.I.G. could not provide.
Fintag says So what have the regulators been doing? Collecting data is one thing - interpreting it is another. The regulators have steadily been capturing more information about all financial institutions but have failed to grasp the simple reporting that is needed.
Exposure and concentration. That is all we need to know. Tier 1 capital et al is a fantasy as in reality all financial institutions have their home governments as Tier 1 capital (excepting Lehman of course who Goldman hated and let loose).
Mr Sarkozy complained to police in September after 'small amounts' began disappearing from the account. Police said financial thieves regularly make lots of small illegal withdrawals as a means of trying to keep their crimes undetected.
The embarrassing revelation comes at a time when the French president is trying to portray himself as a leading player in the international financial crisis.
Parisian thieves obtained confidential numbers and passwords so as to withdrawn regular slices of Mr Sarkozy's annual salary of £195,000 a year.
A prosecutor from the Paris suburb of Nanterre was investigating the case, along with fraud squad officers, Mr Sarkozy's office confirmed.
Before talks with President George W. Bush in the U.S.A at the weekend Mr Sarkozy, whose country holds the revolving presidency of the European Union, urged a revamping of the world's financial system.
The financial crisis is forcing regulators to encourage the creation of bigger, more interconnected institutions. In the short term, this may serve a useful purpose by allowing healthier, well-capitalized banks like Wells Fargo, Bank of America and JPMorgan Chase to shore up weaker ones.
To save the system, regulators encouraged Bank of America to absorb Countrywide.
But it also presents a serious threat to the financial system by fostering financial behemoths that are, to use Federal Reserve Chairman Ben S. Bernanke's euphemism, “systemically critical.” Policy makers need to start thinking about how to downsize institutions that are becoming “too big to fail” before the situation comes to that.
The basic problem is, in the argot of Wall Street, excessive concentration of risk — or, in layman's terms, the placing of too many eggs in too few baskets. For the moment, it's easy to see why regulators have encouraged acquisitions like JPMorgan's of Washington Mutual and Bear Stearns, and Bank of America's of Countrywide. These are a common tactic used in times of distress to spread capital across the banking system to fill in the weak spots.
Fintag says Banking licenses should be given to all the hedge fund managers plus a large chunk of capital. We can provide the competition.
THIRD QUARTER IS WORST EVER FOR HEDGE FUND REDEMPTIONS
Steep performance losses and record investor capital redemptions reduced the size of the hedge fund industry by $210 billion in the third quarter of 2008. This represents the largest historical quarterly decline in assets since 2005, according to data released by Hedge Fund Research.
Investors withdrew over $31 billion in the third quarter, the largest net capital redemption in the industry's history, according to the research organisation.
At the end of the third quarter, total industry capital stood at $1.72 trillion, down from $1.93 trillion at the end of second quarter. The third quarter withdrawals entirely offset the capital inflows into hedge funds during the first half of the year, bringing year-to-date net capital flows to a decline of $2.5 billion.
Fintag says Lenders want their money back at the markets tank. Investors take fright and want cash. We are sitting on cash ready to hand back investments. Bye bye hedge fund industry - where is our bail out fund?
Due to the opacity of the market, which is one of the most complex, least regulated and least understood in the global financial system, it is still not clear how many contracts have to be settled or which institutions will take the ultimate hits once the billions of dollars worth of contracts have been unravelled. The collapse of Lehman Brothers, is expected to trigger credit default swap (CDS) protection pay-outs of about $400bn but because the contracts were sold many times through different counterparties it is not yet known who will be liable.
One commentator said: “This will be the greatest illustration of the follies of Wall Street and how unnecessarily complicated the wild off-track betting became in the past few years.”
Fintag says Let us see if this really is as bad as it maybe?
Fidelity, best known as a mutual fund company, has been rapidly growing its nascent prime brokerage business during the recent market turmoil as hedge funds defect from the big banks, which have for years dominated the lucrative industry.
Fidelity expects to add 50 new clients in the next two to three weeks to its existing 300, company executives told the Financial Times. Its client accounts have risen by 20 per cent in the past month, but client assets rose by 40 per cent, indicating that Fidelity was attracting larger funds. About half its clients are funds of $1bn or more.
Fintag says Good timing, bad timing? Do they have the systems? Unlikely. More PR spin.
Say what you will about Andrew Lahde, but the man knows how to write a letter.
Last month, the famed-for-betting-against-subprime hedge fund manager shuttered his operations, citing unacceptable levels of counterparty risk.
His goodbye missive is impressive not just for its length, but for its clearly-articulated (and somewhat apocalyptic) closing arguments.
Verbatim:
“Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America....
Fintag says Such a nice man. His sentiments are interesting but what a ****.
Normally, it would have been a dire week. Inflation rose to a 16-year high of 5.2%, the jobless total hit its highest level in 17 years and there was gloomy news from the high street and the housing market. The US was in equally bad shape. Consumer confidence, according to figures out yesterday, suffered its sharpest ever one-month fall last month as the public digested the implications of a month of mayhem on Wall Street.
But these are not normal times and in London, Washington, Paris and Berlin last night there was a sense that the week could have been much worse; in fact, that the world was back from the abyss.
Fintag says Socialism 1 Capitalism 0. Really?
SHOCKED COLLECTORS SEEK BARGAINS AS FRIEZE BUYING STAMPEDE EBBS
The annual frenzied sales at London's Frieze Art Fair evaporated this year as collectors felt no pressure to make expensive purchases instantly, dealers said.
"People are shell-shocked by the world economy,'' said New York gallerist Marianne Boesky, who had a booth at the five-day fair, which ended yesterday. ``People are buying but they're taking it slowly and not rushing into things.''
Fintag says The Design Art London show in my neck of the woods last week reported its best ever sales. People are looking for quality tangibles. But history shows this doesn't always work.
...So terrible that Jim Cramer, the happy warrior who cheered the Dow on his cable show surrounded by his menagerie of stuffed animals, sound effects and bobble-heads has traded the pom-poms for a votive candle, praying that the market finds a way to right itself — and maybe restore some of the luster to his chosen profession.
After years of selling the stock market as a reliable path to riches, Mr. Cramer came in for some brutal criticism recently from viewers and competitors...
As many as one in 15 hedge fund employees could be out of a job by the end of the year, one executive search firm has estimated.
Options Group says that hedge funds have already cut between 3,000 and 5,000 jobs this year, numbers which could double by the end of the year. Hedge funds employ an estimated 150,000 people worldwide. Those losses are a drop in the bucket compared to the bloodbath on Wall Street—the world's biggest banks and securities firms have slashed 131,766 jobs in the second half of 2008 alone—but it's a big deal for the hedge fund industry.
“It's bad out there,” Michael Karp, CEO of New York-based Options Group, told Bloomberg News. “Generating returns is not easy at the moment and as funds look to cut costs, the best way is to let go of people.”
Fintag says Not nice.
5 comments
Dan said ...
Cramer, that criminal. He should get locked up with the debtors.
And cmon Fin, you know you love the santa monica manager style. He's out here loving life, as are the rest of us. Women, beaches, trading screens - it's not gonna get any better.
20 Oct 08 - 06:38 gmt
anonymous said ...
Fin's newsletters have been light lately...new lady Fin?
20 Oct 08 - 08:30 gmt
MsR said ...
Fin, you're not supposed to draw on library books...
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