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
One of the downsides at the speed and opaqueness of the current "public ownership at all costs" debate, is there is no analysis.
The role of analysts and academics used to be spend a lot of time digesting, interpreting and concluding on the state of companies, countries and the macro environment. Once a report was published, politicians, traders and entrepreneurs would all come to their own conclusions on the way forward.
Today, there is no time for analysis. Just like over the past few years when short term greed outweighed long term costs and benefits, nobody wanted the party to end, or question why it should end, and wanted the lines of cocaine to continue forever. Utopia's never last and now we have the rehab clinics trying to solve the global macro issues that the world has been trying to manage in the good times.
Short term politicians are trying to solve long term structural issues with short term gimmicks.
Responsibility is always someone else's. Consumers and the electorate rely on others from health care to financial advice. It is a post second world war disease and we don't know how to fend for ourselves. So in steps Nanny and all our unemployment, poverty, obesity, ageing, health care issues go away. But this has to be paid for - by the people who need to abdicate responsibility, except they are running out of money.
There is real money and fake money. Real money comes from the productions of labour. Fake money is the paper value of assets that nobody wants right now but may want in the future (collectables, real estate, cdo's). When governments rely on fake money then the walls do come tumbling down.
I spoke to someone who lived through the great depression about 15 years ago. I still have my notes. She said that after the first wave in 1929, the world rocked but then got back to normal quite quickly. A couple of years later, the fake money was exposed and assets deflation caused mayhem. Socialism in the 1930s was very popular because it shielded the masses from the real state of the economy. Sound familiar? Once governments own assets, they are no longer accountable and just make the numbers up. Look at the old USSR. We thought it was a super power. They told us. The USA had no idea what the USSR was up to and told us to be scared. We were. Then the Berlin Wall came down and we realised it was nothing of the sort. Lots of concrete buildings and poor sad vodka soaked people.
Is this where we want to end up? Capitalism is cruel in bad times but wonderful in the good times. Socialism tries to level out the bumps and troughs and fails every time.
If the masses are illiterate peasants, like China, then communism and socialism work fine. Exploitation is rife and the weakest suffer. Nobody questions because the educated have the power. If, like now, the masses are educated (or have access to google) then trying to hide behind a mask of we know best puts governments in an untenable position - hence the massive distrust in polititians today.
The solution? Ban education. Bring back a class system. But isn't that where we are going with cloning? The masses will be give IQ's of 90, forced to play computer games all day long and eat cheap food that will keep their lives short?
I have just read Brave New World by Aldous Huxley. This was written in a time when intellect was seen as a good thing. I like intellectualism. We have been "doing" too long and now need time to think and reflect. That is certainly what my Quant boys and girls are doing - thinking about why they got it so wrong when they were "doing".
In the hedge fund space we, like poker players, like certainty or probability of certainty. We look to history, the present and assumptions on the future. We get it right most of the and like black swans accept the odd failure. We had answers but our models like everyone elses are outdated.
Today we have no answers. Hedge funds, banks, governments, conglomerate ceos, military dictators. So when we see the world turning to 0% interest rates, we get very confused.
Remember learning portfolio theory at college? The risk free return being that of T-Bills? Now it is 0% does the CAPM become redundant [Editor: I thought it was redundant anyway?]. Here are some thoughts on 0% interest rates:
- Banks margins are slashed so they put up the costs of running a bank account; upshot is we all use cash; credit cards lose out; tracking our spending habits becomes trickier
- Savers are hit and will seek risky investments like CDS's
- Currencies crash (GBP in particular) and imports become expensive and inflation goes up forcing rates up
- Government debt maybe cheap but nobody will buy it
- Currency trading will increase rapidly as the value of currency will not be rates anymore but political stability and whether they are propped up and bailed out by the IMF / World Bank
- As in Greenspan's time, low rates kicked off the demand for asset backed securities as pension funds et al looked for a few basis points. So another credit crucng beckons?
And so on. We have no answers because nobody has ever thought we would be where we are now.
Enough of my rambling, let's look at the news stories that are making me sweat. Sometimes the life of a dinosaur doesn't look too bad.
Apologies Having re-read this I need to apologise. In return here are some charts:
US ASSET MANAGERS TURN TO LONDON TO OPEN LATEST OFFICES
Three US asset managers have opened sales offices in London in the past month. Sales and client service staff based in the UK capital are seen as essential for businesses that have until now run most of their money in the US.
That is less to do with the UK's defined-benefit pensions market, most of which is closed and in run-off, and more to do with being in the same time zone as asset-rich clients in the Middle East, Europe and Africa.
US Treasury secretary Henry Paulson said he has moved away from the original focus of the Troubled Asset Relief Program—the purchase of illiquid mortgage assets—because ultimately TARP "would not be sufficient given the severity of the problem.” However, Paulson said banks are still likely to get their share of the remaining TARP funds before others.
In addition, Treasury may require firms requesting federal money to raise private capital to secure those funds, according to a report in the Wall Street Journal, citing sources familiar with the situation. Dow Jones owns the Journal and Financial News.
Fintag says Let's face it. Paulson's intention was always to create his own SWF or government owned hedge fund. He are my previous comments:
finfacts says " Global financial sector credit crisis losses near $1,000bn; Paulson abandons toxic assets plan; Consumer credit markets "ground to a halt" "
The British economy faces its toughest year in almost three decades, the Governor of the Bank of England said yesterday. Mervyn King gave warning of “very difficult times” ahead and an even sharper recession than that of the early Nineties.
His bleak assessment set the stage for further drastic cuts in interest rates — which some experts say could fall as low as 1 per cent.
Unemployment rose by 140,000 to 1.82 million in the three months to September and is predicted to exceed two million early next year. The Bank raised the spectre of deflation, reviving fears of a downturn on the scale of the Great Depression of the Thirties.
Fintag says Pushing rates to zero doesn't really send out a positive vibe. No wonder all the hot money is leaving the UK. From a hedge fund perspective, a falling GBP has a pleasant side effect. Most of us have USD funds so we are making money by doing nothing. Nice.
Hedge fund managers usually shun the spotlight. But five of them, billionaires all, are about to come under the glare on Capitol Hill.
The money managers — Philip Falcone, Kenneth C. Griffin, John Paulson, James Simons and George Soros — have been called by a House panel to discuss some of their trade secrets at a hearing on Thursday.
The topics are likely to include the managers' use of leverage — the borrowed money that fuels investment returns on the way up but can be devastating on the way down — and the managers' pay.
Fintag says Now this will be interesting.
reuters says " UK watchdog steps up talks with hedge firms "
Australia moved to slap a permanent ban on the most controversial form of short-selling on Thursday amid a historic fall in share prices, part of a crackdown targeting hedge funds and credit-rating agencies.
Corporate Law Minister Nick Sherry, in uneviling proposed changes to financial regulation, also announced tighter regulation and supervision of credit-ratings agencies which have been accused of failing investors in the global credit crisis.
Fintag says I thought Naked Shorts were outlawed in most places? So tell me, if I bet against a stock price (using a put option or a straight forward bet at a betting shop will I be sent to jail?). Policing this is near impossible. A bi-lateral arrangement and nobody will ever know.
AMERICAN EXPRESS (AXP) SEEKING $3.5 BILLION FROM TARP
Here's your deteriorating credit card industry for you. American Express is seeking $3.5 billion from the government amid rising defaults, reports WSJ. It's not clear what the company would use the money for, but we're guessing the answer is: you know, stuff. That AmEx would turn to the fed is no surprise, given that the debt market has turned hostile to its industry.
Fintag says I am a failure, get me out of here ...this is all so unbelievable I often think I am taking uge amounts of drugs and living in a virtual computer game.
But if he wants to wean them off state support as soon as possible, he can't expect them to grease the wheels of the economy effectively, to end the contraction of credit that's been doing us so much harm.
Or to put it another way, if the chancellor wants to be confident that we will eventually bounce back with a vengeance from this economy misery, he and the banks may have to accept that massive taxpayer funding of the banks is the new norm, the new status quo.
Fintag says I am not a fan of Rob "anyone for some inside information" Peston, but he is well read and I thought I would point this article as because I feel he is starting to lose his red spots.
MAVERICK'S AINSLIE DISAPPOINTED, EMBARRASSED OVER LOSSES
Hedge funds' monthly 'Dear Investor' letters are quickly becoming case studies in self-pity, self-flagellation and flourishes of apology. The latest missive circulating in cyberspace comes from Maverick Capital, and it's a dandy.
Maverick managing partner Lee Ainslie told investors in an Oct. 9 letter that he couldn't find words to describe the firm's “disappointment, embarrassment and shock” over its horrible results in the third quarter, which spanned every sector and region in which it invested in.
Fintag says Red faces all round.
PORNO HEDGE FUND CLOSES TO INVESTORS, SEQUEL PLANNED
At least one sector of the economy is still thriving, if the success of its hedge fund is any indication.
AdultVest Inc. announced that it had closed its Priapus Investment Fund, which invests in the adult entertainment industry, to new investors, and it has a second fund in the works.
It seems the smut business is impervious to economic downturns.
Fintag says Actually I think the porn industry has topped out. There is too much and in these new austere Victorian times, porn peddlars will soon be seen as perpetrators of all things liberal and decadent. Bring back the corset and eunochs ...
he global hedge fund industry lost $100bn of assets in October, according to an estimate from data provider Eurekahedge, as firms including Sparx Group and Tantallon Capital were buffeted by investor redemptions, reports Bloomberg. Funds fell an average 3.3% in October, based on preliminary figures, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. The loss compares with the 19% slide in the MSCI World Index last month, as managers who trade futures, known as commodity trading advisers, or CTAs, and those who invest in Japan helped offset declines, Eurekahedge said.
Fintag says That seems like a result; probably because most funds are closed and investors cannot get their money out ...
Since his election last week, Barack Obama has largely avoided getting entangled in resolving issues now that will face him later as president, except for one big item: Bailing out the U.S. auto industry.
A heated debate has broken out in Washington over whether to use $25 billion of a $700 billion financial bailout package to provide a lifeline to the Big Three automakers -- GM, Ford and Chrysler -- which are suffering from plummeting sales.
Fintag says Barack Obailout is going to be the USA's Gordon Brown. He has the charm of Tony Blair but the socialist streak of Brown. What a combo.
156 One-Handed Economist 0 No change 0.00% (below threshold for top 200 newspapers)
Fintag says Please check out this chart. As you know in times of stress, visits to the financial media increase 100 fold. Given we live in an American-centric world, it is pleasing to note that FiNTAG isn't included but if it was would be in about 8th place. Yes, my current hit rate is around 10,000 a day - a great responsibility on my shoulders but great for my ever expanding ego.
CHINA STIMULUS WILL HAVE LITTLE GLOBAL IMPACT, SAYS J.P. MORGAN
Increased demand for commodities will affect mainly cement and steel, neither of which will benefit companies outside China, argues Frank Gong.
The Rmb4 trillion ($587 billion) stimulus package announced by China this past weekend is large enough to cushion the downturn in the domestic economy and ensure that the country's economy continues grow above 8% a year, but its impact on the global economy and even the rest of Asia is likely to be much smaller than initially anticipated, according to Frank Gong, J.P. Morgan's head of China research and strategy.
“This package alone will not be able to turn the global commodities markets around,” he said at a press briefing yesterday. “For infrastructure spending you probably need steel, cement, heavy machinery and a lot of cheap labour, but China is still going to see a big slowdown in exports and industrial output. Also, infrastructure doesn't need much energy or industrial metals like aluminium, nickel, tin, copper etcetera and cement is a commodity that is made locally so the increase in demand will have no global significance.”
Fintag says I think we have all concluded that now. Protectionism is the new capitalism.
William Ackman, who runs the $6 billion hedge-fund firm Pershing Square Capital, has given unsolicited advice to lots of well-known companies — McDonald's and Target, just to name two.
Now, he has some advice for General Motors — and it is probably not what the once-mighty Detroit automaker wants to hear. In an interview with Charlie Rose that was shown on Tuesday, he said that G.M. should be restructured in bankruptcy, not kept afloat by government loans.
Mr. Ackman's fund often takes short positions in shares of companies he thinks are heading for trouble, but he said that he had “no economic interest either way” in G.M.'s fate.
Fintag says It will be painful, but GM must be let loose. Nationalisation is the wrong answer - truly it is.
27 comments
Blackcat said ...
Fin - Great opening comments!
13 Nov 08 - 07:53 gmt
anonymous said ...
What about the prostitute market? How is this being affected by the crunch?
13 Nov 08 - 08:05 gmt
I Hedge Truth said ...
was paulson so stupid to think he wouldn't cause a collapse in the banks yesterday...?...
when he announced they wouldn't be buying rmbs, everybody cratered...nice...well played...i loved it...
13 Nov 08 - 08:08 gmt
I Hedge Truth said ...
anyone interested in giving me an interview..?..i'm a private trader with 20 years of experience...first job was with alex brown(who remembers alex brown & sons? )...
after depleting my trading fund to buy a beach condo in santa monica, i started again with $42k(yes, just $42,000 US dollars) on august 4, 1998 and grew it to more than $6 million USD by june of 2000...
i am not kidding...i have the audited trading records as proof...
13 Nov 08 - 08:10 gmt
I Hedge Truth said ...
continued...most of the gains were from short selling the internet stocks...BEFORE the bubble burst...NOT AFTERWARDS, when it was easy to ride them all down...anyone who was not an active US trader during this period of 1998 thru march 10th of 2000(the top...also conicidentally my birthday), HAS NO IDEA how difficult it was to short the net stocks and live to tell the tale...no options were utilized...NONE...just daily shorting and covering and occasionally going long...
13 Nov 08 - 08:12 gmt
I Hedge Truth said ...
continued...i am 42...university of virginia...3.8 GPA...1480 SATs(in 1984, when the SAT test had yet to have been made easier)
many more details(honestly it could be a movie...for example i utilized tom costello from CNBC as my mouthpiece while trading from my santa monica beach condo...)...please email me at StevenM@madrid.com...
i am based in the US but would be willing to look at an opportunity anywhere...
thanks much fin for letting me post this...
13 Nov 08 - 08:17 gmt
fitzcaraldo said ...
"Where does all this lead to"? Everybody is drawing analogies to the great depression of the 30's of the last century - what about going back to the middle age? The Catholic ban on taking interest and money coming only from private pools of capital - mostly Jewish families - this is why hedge funds are the new banks...
13 Nov 08 - 08:35 gmt
Panta said ...
Morning Fin...After two years in London one as a exotic (toxic) options sales and one as an cash equity broker, I will quit the business and start my own private boutique....as a Fruit & Veggie market maker in bouroughs market hoping that this stage of entry will be better.... (no more business dinners @ some Jap restaurants in mayfair but huge "cotes de boeuf" @ Black & BLue...which I prefer....)
13 Nov 08 - 08:51 gmt
anonymous said ...
Bye bye Dubai. As solid as any beach sand castle.
13 Nov 08 - 09:05 gmt
anonymous said ...
I Hegge Fund Truth..... you sound like an utter cock
13 Nov 08 - 09:10 gmt
anonymous said ...
Brave New World scared me to death when I read it as a teenager. A book never to be forgotten, along with 1984.
13 Nov 08 - 09:13 gmt
hal said ...
Why GE is not in your hall of shame?
13 Nov 08 - 09:26 gmt
M said ...
Mr Taggit...I am under the impression that there less and less actual work for you to do...as the opening comments keep getting longer :)
13 Nov 08 - 09:40 gmt
anonymous said ...
M everyone has gone to 70-80% cash and no-one is turning over their portfolios over too much. The pre election bounce didn't attract any new money in i think, as all funds are keen on staying cashed-up ahead of end Nov and/or end Dec redemption driven selling. Trading vols to remain light outside of these concentrated bouts of fire-selling.. Fin may have differnet views but this is a fair summary i think.
13 Nov 08 - 09:49 gmt
Tradebot said ...
... agreed re : comment on cash and Dec redemptions. Spot on. Action in currencies though...race to the bottom, UK leading...of course the economically illiterate UK press has not caught up yet on the fall in GB Peso...
13 Nov 08 - 10:32 gmt
M said ...
Don't get me wrong, i thoroughly enjoy Mr Taggit's comments first thing in the morning. Soon I will no longer have the time to read them, but as long as fund managers are sitting on cash, the comments will be getting longer still:).
13 Nov 08 - 10:33 gmt
cockyspiv said ...
Anonymous (08.05) - The prostitute market is having its ups and downs
13 Nov 08 - 11:39 gmt
anonymous said ...
Anonymous of 9:05am- you're right- he must be a cock. Fintag- why'd you let him post it?...was it just for our amusement?
13 Nov 08 - 12:59 gmt
Panta said ...
I keep on counting the sheeps...
13 Nov 08 - 13:02 gmt
anonymous said ...
Panta- with yesterday's EU ruling you'll be able to sell "I Hedge Truth" (COCK) shaped vegetables
13 Nov 08 - 13:04 gmt
Panta said ...
@Anon.... :) and what about Mifid??
13 Nov 08 - 13:22 gmt
tom costello from CNBC said ...
Yes I remember StevenM, and I remember him as an utter cock
13 Nov 08 - 13:52 gmt
gumjon said ...
Panta- just trade carefully-you may well come under the scope of Mifid and the EU in the Borough vegetable market. good luck
13 Nov 08 - 14:08 gmt
Moron said ...
dribble dribble dribbley dribble
13 Nov 08 - 16:47 gmt
Dirty Harry said ...
From Reuters--Former Goldman Sachs chairman John Whitehead is quoted as saying the current slump will be worse than the Great Depression!
13 Nov 08 - 19:01 gmt
Jack Kevorkian said ...
Nov. 13 (Bloomberg) -- President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar the companies.
Please, please just let them die, pull the plug I can't watch them suffering any longer.
13 Nov 08 - 19:32 gmt
anonymous said ...
Advice please.
One of my hedge funds - usually the best performer - is down 64% YTD. I have a redemption request in for the end of the month. They say they are liquid enough to ride out the current turmoil. Do I take what's left of my money (1/3) or stay the course.
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