It's not that we've lost faith exactly, but last week when Geithner dragged out that hoary old China “money manipulation” ghost out of the closet,I thought for sure we were going to have a “oldies but goodies” Bush rehash. You know, pull all the old skeletons out of the closet and shake them; if you rattle them around energetically enough you don’t even need to dust them off. But we're relieved to tell you that it appears that is not so. The Obama administration is gearing up for a “big bang” announcement next week that will combine a bank clean-up with measures to reduce home foreclosures and probably steps to kick-start credit markets.
The plan will involve an overhaul of the effed up asset relief program – the $700bn bail-out fund – including strict curbs on compensation at banks receiving public aid. The Tarp overhaul is intended to restore public confidence in what is a deeply unpopular program (we're not big supporters of it either) and ensure that taxpayer money is not used for excessive pay, bonuses and dividends to shareholders.
“There will definitely be a cap of some sort on bonuses,” said a Wall Street exec who has taken part in talks with the authorities. “The political climate is such that there is a need to punish Wall Street.”
Like the night, the day, the announcement will follow Friday’s news that the US economy contracted at an annualised rate of 3.8 per cent in last year’s final quarter – less than analysts were expecting (4.0% +) , but still the worst quarter since 1982. The fall was cushioned by ballooning inventories, which suggest the economy could shrink faster than expected in the first quarter.
The “big bang” approach reflects the belief of Tim Geithner, Treasury Secretary, and Lawrence Summers, National Economic Council Director, that the Bush administration was wrong to dribble out policy initiatives. Mr Geithner intends to present a “comprehensive” plan that policymakers hope will command market confidence.
Details of the overhaul are being finalized and have yet to be approved by President Obama, but there's a good chance it will include the purchase of toxic assets by a “bad bank” and insurance-style guarantees for problem assets remaining on bank balance sheets.
Whatever.....Keep those loins well girded and those fingers crossed sports fans! (Although they may get stiff – this isn’t gonna happen overnight.) It’s gonna take months and months. Let’s not kid ourselves. Years.
Saturday, January 31, 2009
Friday, January 30, 2009
Could 2/20 turn into 1/10?
Hedge fund fees are being squeezed big time!
Since 1990 the number of hedge funds has grown by 14 times to over 7,000, but abundance has not lowered prices. Funds typically still charge clients a management fee of 2% of assets and 20% of any profits above a given hurdle. Rough calculations suggest that in the boom year of 2007, hedge funds globally received $33 billion in management fees alone—roughly equivalent to the bonus pool paid by Wall Street’s securities industry.
That may now be changing. The average hedge fund lost 18% during 2008, according to Hedge Fund Research, an analysis firm. Assets fell by a quarter, reflecting both losses and client redemptions, which are expected to accelerate. To prevent fire sales, perhaps a third of funds have restricted client withdrawals. Giving clients temporary fee cuts has helped sweeten this pill.
http://www.economist.com/finance/displaystory.cfm?story_id=13036802&fsrc=rss
Since 1990 the number of hedge funds has grown by 14 times to over 7,000, but abundance has not lowered prices. Funds typically still charge clients a management fee of 2% of assets and 20% of any profits above a given hurdle. Rough calculations suggest that in the boom year of 2007, hedge funds globally received $33 billion in management fees alone—roughly equivalent to the bonus pool paid by Wall Street’s securities industry.
That may now be changing. The average hedge fund lost 18% during 2008, according to Hedge Fund Research, an analysis firm. Assets fell by a quarter, reflecting both losses and client redemptions, which are expected to accelerate. To prevent fire sales, perhaps a third of funds have restricted client withdrawals. Giving clients temporary fee cuts has helped sweeten this pill.
http://www.economist.com/finance/displaystory.cfm?story_id=13036802&fsrc=rss
Is Fortress On The Edge Of Insolvency?
Wow, how the mighty have fallen. According to Bloomberg, Fortress (ticker: FIG), which was the first hedge fund to IPO in the heydays of the credit bubble in the summer of 2007 is trying to raise $80 million to fund margin calls associated with its investment in Gagfah, a German residential property operator, as well as two other real estate investment funds, Eurocastle and Nationstar. Allegedly the margin calls have occurred at the Fortress Investment Fund III, a $2 billion real estate pool raised in 2004, however as Fortress (whose shares last traded at $1.34/share or a 93% drop from its IPO) has already called all the capital from Fund III, according to Bloomberg, it is likely that there is essentially no cash left anywhere in the organization for intercompany transfers.
Oregon Investment Council, which manages $60 billion, and already has a sizable stake with the manager, is considering whether or not to bail the firm out and on what terms. According to Fortress "$80 million will allow the fund to hold investments until prices rebound, potentially yielding a three to five times return on the new capital invested." Judging by how the CMBS market is acting these days, a promise of a "five times return" on any real estate fund, is definitely fit for a stand up comedy routine on late night
http://zerohedge.blogspot.com/2009/01/fortress-investment-group-on-edge-of.html
Oregon Investment Council, which manages $60 billion, and already has a sizable stake with the manager, is considering whether or not to bail the firm out and on what terms. According to Fortress "$80 million will allow the fund to hold investments until prices rebound, potentially yielding a three to five times return on the new capital invested." Judging by how the CMBS market is acting these days, a promise of a "five times return" on any real estate fund, is definitely fit for a stand up comedy routine on late night
http://zerohedge.blogspot.com/2009/01/fortress-investment-group-on-edge-of.html
The kind of financial perversity only Credit Suisse could come up with
Credit Suisse Group AG’s investment bank has found a new way to reduce the risk of losses from about $5 billion of its most illiquid loans and bonds: using them to pay employees’ year-end bonuses.
The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.
“While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,” Chief Executive Officer Brady Dougan and Paul Calello, CEO of the investment bank, said in the memo.
The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland’s second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.
http://www.bloomberg.com/apps/news?pid=20601087&sid=auEEfFRNdqcs&refer=home
The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.
“While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,” Chief Executive Officer Brady Dougan and Paul Calello, CEO of the investment bank, said in the memo.
The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland’s second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.
http://www.bloomberg.com/apps/news?pid=20601087&sid=auEEfFRNdqcs&refer=home
Firm Boss Sees a Halt In Job Cuts
Yugo Ishida, the man who runs Nomura International, is said to have told Reuters at the World Economic Forum at Davos that he doesn't feel that his firm will be making any further jobs cuts in the foreseeable future. The firm has laid-off around 1,100 staff since September.
Nomura Holdings, however, has confirmed that it is thinking of selling businesses in order to raise additional capital, after sustaining a $3.8bn loss in the quarter ended 31st December on bad hedges, FX losses and a small exposure to Bernie Madoff.
The firm is also to reduce costs by 10%, cutting bonuses for senior staff and reducing the size of the bonus pot. Nomura will also not pay a dividend this quarter.
http://online.wsj.com/article/SB123327579767931341.html
Nomura Holdings, however, has confirmed that it is thinking of selling businesses in order to raise additional capital, after sustaining a $3.8bn loss in the quarter ended 31st December on bad hedges, FX losses and a small exposure to Bernie Madoff.
The firm is also to reduce costs by 10%, cutting bonuses for senior staff and reducing the size of the bonus pot. Nomura will also not pay a dividend this quarter.
http://online.wsj.com/article/SB123327579767931341.html
Did JPMorgan Cause Bernie Madoff's Ponzi To Collapse?
If we're following the JP Morgan/Madoff trajectory correctly, it seems that starting in 2006 JP Morgan allowed investors to make bets on the performance of hedge funds that invested with Bernie Madoff. This basically means that JP Morgan was institutionally short Madoff, which is interesting in itself. What made JP Morgan think it could beat the guy who had over forty-years of steady results?
Even more interesting is the fact that JP Morgan initially hedged this bet against Madoff by investing $250 million of its own money with Madoff. And then, as late as last fall, it decided to take off this hedge. What happened in the fall of 2008 to make JP Morgan believe that the bets it had made against Madoff were now so safe that they didn't need to be hedged?
Perhaps the most tantalizing idea is that JP Morgan's withdrawal might have triggered the collapse of Madoff's fund. Recall that although Madoff claimed to be managing tens of billions of dollars, he actually had only a tiny fraction of those assets under his control. A seemingly small withdrawal the size of JP Morgan's $250 million could very well have left Madoff without liquidity to keep up his fraud.
We know that JP Morgan began to become very conservative with its assets last fall. It made collateral calls on Lehman Brothers and Merrill Lynch, requiring the investment banks to hand over billions. Those collateral calls more or less consigned those firms to death. So did JP Morgan also doom Madoff? It does look like Jamie Dimon's shop has played the role of the Grim Reaper all through this credit crisis.
http://clusterstock.alleyinsider.com/2009/1/did-jpm-cause-bernie-madoffs-ponzi-to-collapse
Even more interesting is the fact that JP Morgan initially hedged this bet against Madoff by investing $250 million of its own money with Madoff. And then, as late as last fall, it decided to take off this hedge. What happened in the fall of 2008 to make JP Morgan believe that the bets it had made against Madoff were now so safe that they didn't need to be hedged?
Perhaps the most tantalizing idea is that JP Morgan's withdrawal might have triggered the collapse of Madoff's fund. Recall that although Madoff claimed to be managing tens of billions of dollars, he actually had only a tiny fraction of those assets under his control. A seemingly small withdrawal the size of JP Morgan's $250 million could very well have left Madoff without liquidity to keep up his fraud.
We know that JP Morgan began to become very conservative with its assets last fall. It made collateral calls on Lehman Brothers and Merrill Lynch, requiring the investment banks to hand over billions. Those collateral calls more or less consigned those firms to death. So did JP Morgan also doom Madoff? It does look like Jamie Dimon's shop has played the role of the Grim Reaper all through this credit crisis.
http://clusterstock.alleyinsider.com/2009/1/did-jpm-cause-bernie-madoffs-ponzi-to-collapse
Dating-A-Banker Anonymous: She was never that into you
Today’s candidates for the official two minutes of hate come from the pages of the New York Times. They are the women who are part of the heartless gold-diggers club they politely call Dating a Banker Anonymous.
Okay. We know they mean this as a tongue in cheek exercise. No one in their right minds would ever seriously expect sympathy for a group open to women “if your monthly Bergdorf’s allowance has been halved and bottle service has all but disappeared from your life.” Their website is genuinely funny.
But sometimes a wink and a nod hides some ugly truth. Starting in November, the group began meeting in slinky cocktail dresses, drinking cocktails and griping about how hard life is now that their boyfriends, husbands and the husbands of other women who they are having an affair with are no longer as wealthy as they once were…..
http://clusterstock.alleyinsider.com/2009/1/she-was-never-that-into-you
Okay. We know they mean this as a tongue in cheek exercise. No one in their right minds would ever seriously expect sympathy for a group open to women “if your monthly Bergdorf’s allowance has been halved and bottle service has all but disappeared from your life.” Their website is genuinely funny.
But sometimes a wink and a nod hides some ugly truth. Starting in November, the group began meeting in slinky cocktail dresses, drinking cocktails and griping about how hard life is now that their boyfriends, husbands and the husbands of other women who they are having an affair with are no longer as wealthy as they once were…..
http://clusterstock.alleyinsider.com/2009/1/she-was-never-that-into-you
Friday Fun: How Madoff Lost All That Moolah
An alligator ate it! Of course it's not real. But we still like this Captain Hook explanation for how he lost $50 billion.
Keep your eye out for spendy alligators!
http://clusterstock.alleyinsider.com/2009/1/bernie-madoff-explains-how-he-lost-all-that-money
Keep your eye out for spendy alligators!
http://clusterstock.alleyinsider.com/2009/1/bernie-madoff-explains-how-he-lost-all-that-money
Thursday, January 29, 2009
Why Do Bankers Screw Up And Still Keep Their Jobs?
Why ask why? At banks getting bailout money nearly nine out of every 10 of the most senior executives from 2006 are still on the job, according to the Associated Press. The AP review reveals one of the blackest ironies of the whole bailout deal: The same executives who were at the controls as the banking system nearly collapsed are the ones the government is counting on to help save it.
Even top execs whose banks made such risky loans they imperiled the economy have been largely spared any threat to their jobs, as Washington pumped billions in taxpayer money into the companies. Less fortunate are more than 100,000 bank employees laid off during a two-year stretch when industry unemployment nearly tripled, bank stocks plummeted and credit dried up.
"The same people at the top are still there, the same people who made the decisions causing a lot of our financial crisis," said Rebecca Trevino of Louisville, Ky., a mother of three who was laid off from her job as a Bank of America training coordinator in October. "But that's what tends to happen in leadership. The people at the top, there's always some other place to lay blame."
That workers and managers experience a recession differently is hardly a surprise. What's new is that taxpayers are now shareholders in the nation's bailed-out banks, yet they lack the usual shareholder power to question management decisions or demand house-cleaning in the executive suites. The experts claim that that would be “socialism”.
Wells Fargo & Co., for example, once was among the top lenders of subprime mortgages, or loans to buyers with low credit scores. The company received $25 billion in bailout money and plans layoffs in the coming months. But longtime CEO Richard Kovacevich remains the company's chairman, and the board recently waived its mandatory retirement age for him. John Stumpf, the president since 2005, became chief executive in 2007.
"Our senior leadership team of our CEO and his direct reports have an average tenure of almost a quarter-century with our company," Wells Fargo spokeswoman Julia Tunis Bernard said in a prepared statement. "Our unchanging vision, values and time-tested business model will continue to guide our leaders and our team into the future, and are now more than ever a competitive advantage as our industry evolves."
Yeah? Says who? Under the government's no-strings-attached bailout plan, taxpayers must take it on faith that bank execs will make better decisions this time around. If Congress really believes this, I’ve got some real estate on the Brooklyn Bridge to sell them, cheap at the price. If what we’re advocating is socialism, so be it. If as taxpayers we're handing over all this money, the least we deserve is a say in how it’s spent. Is that going to make the banks in this country less private? Tough! You want the dough, you've got to dance the tune.
Even top execs whose banks made such risky loans they imperiled the economy have been largely spared any threat to their jobs, as Washington pumped billions in taxpayer money into the companies. Less fortunate are more than 100,000 bank employees laid off during a two-year stretch when industry unemployment nearly tripled, bank stocks plummeted and credit dried up.
"The same people at the top are still there, the same people who made the decisions causing a lot of our financial crisis," said Rebecca Trevino of Louisville, Ky., a mother of three who was laid off from her job as a Bank of America training coordinator in October. "But that's what tends to happen in leadership. The people at the top, there's always some other place to lay blame."
That workers and managers experience a recession differently is hardly a surprise. What's new is that taxpayers are now shareholders in the nation's bailed-out banks, yet they lack the usual shareholder power to question management decisions or demand house-cleaning in the executive suites. The experts claim that that would be “socialism”.
Wells Fargo & Co., for example, once was among the top lenders of subprime mortgages, or loans to buyers with low credit scores. The company received $25 billion in bailout money and plans layoffs in the coming months. But longtime CEO Richard Kovacevich remains the company's chairman, and the board recently waived its mandatory retirement age for him. John Stumpf, the president since 2005, became chief executive in 2007.
"Our senior leadership team of our CEO and his direct reports have an average tenure of almost a quarter-century with our company," Wells Fargo spokeswoman Julia Tunis Bernard said in a prepared statement. "Our unchanging vision, values and time-tested business model will continue to guide our leaders and our team into the future, and are now more than ever a competitive advantage as our industry evolves."
Yeah? Says who? Under the government's no-strings-attached bailout plan, taxpayers must take it on faith that bank execs will make better decisions this time around. If Congress really believes this, I’ve got some real estate on the Brooklyn Bridge to sell them, cheap at the price. If what we’re advocating is socialism, so be it. If as taxpayers we're handing over all this money, the least we deserve is a say in how it’s spent. Is that going to make the banks in this country less private? Tough! You want the dough, you've got to dance the tune.
Next in the hot seat: Bank of America’s Ken Lewis
Sources tell us that Bank of America chief Ken Lewis could soon find himself ensnared in Cuomo's probe of the $4 billion in bonuses Merrill paid out just days before it completed its merger with BofA.
Cuomo's office is pushing to uncover what Lewis knew about the bonus payments, and when he knew it.
"This is a serious investigation and we intend to get to the bottom of how this happened, and that will likely mean going all the way to the top," said a person familiar with the investigation.
That could mean that Lewis might join Thain in receiving a subpoena from Cuomo's office as part of a probe into who authorized billions of dollars to be paid out to Merrill execs, even as Merrill was set to record an eye-popping $15 billion, fourth-quarter loss.
In addition to Thain, Cuomo's office subpoenaed BofA Chief Administrative Officer Steele Alphin to address conflicting information about whether BofA officials were aware that Merrill was paying out the bonuses and whether BofA officials were unable to stop the bonuses from being paid, as they have asserted.
http://www.nypost.com/seven/01282009/business/bofas_lewis_is_next_152316.htm
Cuomo's office is pushing to uncover what Lewis knew about the bonus payments, and when he knew it.
"This is a serious investigation and we intend to get to the bottom of how this happened, and that will likely mean going all the way to the top," said a person familiar with the investigation.
That could mean that Lewis might join Thain in receiving a subpoena from Cuomo's office as part of a probe into who authorized billions of dollars to be paid out to Merrill execs, even as Merrill was set to record an eye-popping $15 billion, fourth-quarter loss.
In addition to Thain, Cuomo's office subpoenaed BofA Chief Administrative Officer Steele Alphin to address conflicting information about whether BofA officials were aware that Merrill was paying out the bonuses and whether BofA officials were unable to stop the bonuses from being paid, as they have asserted.
http://www.nypost.com/seven/01282009/business/bofas_lewis_is_next_152316.htm
Hedge Fund Founder makes money the old-fashioned way – Gold!
With the price of gold racing higher over the past two months, more investors are coming around to the notion that the precious metal may be the best option to protect against a possible economic catastrophe. Among the surprise new buyers? Star hedge fund manager David Einhorn.
Gold rose steadily from its November 2008 low of $682 to close at $910.70 on Jan. 26, a five-month high. Despite selling off about $10 an ounce over the next two days, investors, it seems, have realized that much of the Federal Reserve's plan for fighting the credit crunch and reviving the economy are also likely to bolster gold's prospects.
Einhorn, famous for predicting the fall of Lehman Brothers and taking on Allied Capital (ALD), a commercial lender he accused of fraudulent accounting practices, has previously stayed away from gold and the theories of doom that gold bugs frequently offer. But amidst the unprecedented government moves to shore up the economy and ward off deflation, Einhorn's views of catastrophe have come around.
His Greenlight Capital ended a decade-long streak of avoiding losses last year with a 22.7% drop—still far better than the Standard & Poor's 500-stock index's 37% plunge. In a confidential Jan. 20 letter to his investors obtained by BusinessWeek, Einhorn explains why he long avoided buying gold. His grandfather, Benjamin, an amateur gold bug, lost money for 30 years waiting for the U.S. currency to succumb to a catastrophic bout of runaway inflation that never arrived.
http://www.businessweek.com/investor/content/jan2009/pi20090128_208724.htm?chan=top+news_top+news+index+-+temp_investing
Gold rose steadily from its November 2008 low of $682 to close at $910.70 on Jan. 26, a five-month high. Despite selling off about $10 an ounce over the next two days, investors, it seems, have realized that much of the Federal Reserve's plan for fighting the credit crunch and reviving the economy are also likely to bolster gold's prospects.
Einhorn, famous for predicting the fall of Lehman Brothers and taking on Allied Capital (ALD), a commercial lender he accused of fraudulent accounting practices, has previously stayed away from gold and the theories of doom that gold bugs frequently offer. But amidst the unprecedented government moves to shore up the economy and ward off deflation, Einhorn's views of catastrophe have come around.
His Greenlight Capital ended a decade-long streak of avoiding losses last year with a 22.7% drop—still far better than the Standard & Poor's 500-stock index's 37% plunge. In a confidential Jan. 20 letter to his investors obtained by BusinessWeek, Einhorn explains why he long avoided buying gold. His grandfather, Benjamin, an amateur gold bug, lost money for 30 years waiting for the U.S. currency to succumb to a catastrophic bout of runaway inflation that never arrived.
http://www.businessweek.com/investor/content/jan2009/pi20090128_208724.htm?chan=top+news_top+news+index+-+temp_investing
Just How Many Billions Did Harvard Blow?
Harvard Management Co., which runs the world's largest endowment fund, has had until recently an incredible record. Over the past six years, it succeeded in more than doubling the notional value of Harvard's endowment to $36.9 billion in fiscal 2008 (which ended on June 30) even after paying for about one-third of Harvard's operating expenses. So its recent loss of $8.1 billion from July 1 to Oct. 31, 2008, came as a stunning blow. Yet this huge loss, as staggering as it sounds, might be only the tip of the iceberg of illiquid investments. According to a source close to the Harvard Management Co., the damage, if the fund's illiquid investments are realistically appraised, may be closer to $18 billion—or more than twice the amount previously reported. (This is in line with a report, released today, showing an average 22.5 percent drop in endowments in North America.)
The lack of clarity says a lot about how exotic Harvard's finances have become. Its team of highly incentivized money managers—who themselves earned $26.8 million in 2008—adopted a strategy aimed at taking maximum advantage of an inflationary global boom in the early 2000s by shifting the lion's share of Harvard's money from conventional endowment assets—such as bonds, preferred stocks, Treasury bills, and cash—into more esoteric investments that would presumably rise as more money chased after scarcer goods. They bought, for example, oil in storage tanks, timber forests, and farmlands. As the proliferation of trillions of dollars worth of subprime mortgages further expanded the bubble, driving up the price of oil, lumber, and land, the notional value of Harvard's portfolio soared.
http://tbm.thebigmoney.com/articles/diploma-mill/2009/01/27/losing-harvards-billions
The lack of clarity says a lot about how exotic Harvard's finances have become. Its team of highly incentivized money managers—who themselves earned $26.8 million in 2008—adopted a strategy aimed at taking maximum advantage of an inflationary global boom in the early 2000s by shifting the lion's share of Harvard's money from conventional endowment assets—such as bonds, preferred stocks, Treasury bills, and cash—into more esoteric investments that would presumably rise as more money chased after scarcer goods. They bought, for example, oil in storage tanks, timber forests, and farmlands. As the proliferation of trillions of dollars worth of subprime mortgages further expanded the bubble, driving up the price of oil, lumber, and land, the notional value of Harvard's portfolio soared.
http://tbm.thebigmoney.com/articles/diploma-mill/2009/01/27/losing-harvards-billions
Madoff Funds: What did JPMorgan know and when?
JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why.
JPMorgan Chase’s headquarters in Manhattan. A spokeswoman said the bank “became concerned about the lack of transparency” as it reviewed its investments linked to Bernard Madoff.
As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.
But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.
http://www.nytimes.com/2009/01/29/business/29madoff.html?scp=2&sq=hedge+funds&st=nyt
JPMorgan Chase’s headquarters in Manhattan. A spokeswoman said the bank “became concerned about the lack of transparency” as it reviewed its investments linked to Bernard Madoff.
As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.
But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.
http://www.nytimes.com/2009/01/29/business/29madoff.html?scp=2&sq=hedge+funds&st=nyt
Top Bank Slashes Bonus Pool by 80%!
UBS AG, the European bank with the highest losses from the credit crisis, cut its bonus pool for 2008 by more than 80 percent. Variable compensation for the bank’s employees excluding brokers in the U.S. is being reduced, Andreas Kern, a spokesman for Zurich-based UBS, said in an interview today. The pool will be less than 2 billion Swiss francs ($1.75 billion), based on the 9.5 billion francs UBS has said previously it paid out for 2007.
UBS reduced bonuses after it was forced to accept a $59.2 billion government aid package in October, mirroring the U.S.’s capital injections for the biggest American banks. Now that governments have a stake in the industry, employees will be paid less and firms will have to prove they are rewarding talent based on performance, according to Jeanne Branthover, managing director in charge of global financial services for Boyden Global in New York, an executive search company.
“You won’t see compensation packages anywhere near what they were,” Branthover said. “The firms can’t explain it, the profits won’t allow it and shareholders won’t stand for it.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aat3AmlPVS8Q&refer=worldwide
UBS reduced bonuses after it was forced to accept a $59.2 billion government aid package in October, mirroring the U.S.’s capital injections for the biggest American banks. Now that governments have a stake in the industry, employees will be paid less and firms will have to prove they are rewarding talent based on performance, according to Jeanne Branthover, managing director in charge of global financial services for Boyden Global in New York, an executive search company.
“You won’t see compensation packages anywhere near what they were,” Branthover said. “The firms can’t explain it, the profits won’t allow it and shareholders won’t stand for it.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aat3AmlPVS8Q&refer=worldwide
Guess who’s making $1,100 an hour on Wall Street now?
Lawyers at Kirkland & Ellis LLP, home to former Whitewater prosecutor Ken Starr, are asking as much as $1,110 an hour for bankruptcy work while creditors are recovering less of their loans through company restructurings.
Kirkland requested a top rate equal to $18.50 a minute for advising Tronox Inc. in its bankruptcy, according to court papers filed Jan. 26. Chicago-based Sidley Austin LLP and New York’s Skadden, Arps, Slate, Meagher & Flom LLP also requested hourly rates exceeding $1,000 in the past two months in separate bankruptcy cases, as lenders’ recoveries are forecast by ratings company Moody’s Corp. to drop 22 percent in the recession.
Professionals’ fees in bankruptcy cases are growing at four times the rate of inflation, estimated Lynn LoPucki, a professor of bankruptcy law at the University of California, Los Angeles. Total fees paid for lawyers, accountants and other professionals in bankruptcies from 1998 to 2007 doubled, while the consumer price index rose about 25 percent, he said.
“As the economy gets worse, the bankruptcy lawyers are charging more,” LoPucki said. “It seems that each month one sets a new record for hourly billing rates. $1,110 is, to my knowledge, a record for the debtor’s bankruptcy counsel.”
http://www.bloomberg.com/news/exclusive/
Kirkland requested a top rate equal to $18.50 a minute for advising Tronox Inc. in its bankruptcy, according to court papers filed Jan. 26. Chicago-based Sidley Austin LLP and New York’s Skadden, Arps, Slate, Meagher & Flom LLP also requested hourly rates exceeding $1,000 in the past two months in separate bankruptcy cases, as lenders’ recoveries are forecast by ratings company Moody’s Corp. to drop 22 percent in the recession.
Professionals’ fees in bankruptcy cases are growing at four times the rate of inflation, estimated Lynn LoPucki, a professor of bankruptcy law at the University of California, Los Angeles. Total fees paid for lawyers, accountants and other professionals in bankruptcies from 1998 to 2007 doubled, while the consumer price index rose about 25 percent, he said.
“As the economy gets worse, the bankruptcy lawyers are charging more,” LoPucki said. “It seems that each month one sets a new record for hourly billing rates. $1,110 is, to my knowledge, a record for the debtor’s bankruptcy counsel.”
http://www.bloomberg.com/news/exclusive/
New York City fears return to 1970s
While lots of U.S. cities worry that their economies are deteriorating to the level of the 1930s Great Depression, New York City fears reliving a more recent decade that features strongly in city lore. The 1970s were a low point in city history as a fiscal crisis almost pushed it into bankruptcy, crime rates soared, and homeless people crowded sidewalks as public services crumbled.
Almost a million people fled New York's Mean Streets during the decade for the safer, more stable suburbs, a population decline that took more than 20 years to reverse.
When discussing the current crisis, Mayor Michael Bloomberg, now seeking a third term, promises that he will not allow the city to return to the darkness of those days, although he stresses that it faces "giant financial problems."
"I know some are concerned that city services will erode," he recently told reporters. "Let me remind you that the city went down that road in the 1970s ... I can just tell you that we are not going to make that mistake again."
But behind all the rhetoric, there are signs of a city under growing stress, including a rise in homelessness that's driving more families to shelters and last year's 57 percent spike in bank robberies.
http://www.reuters.com/article/domesticNews/idUSTRE50Q6IH20090127?feedType=RSS&feedName=domesticNews&rpc=22&sp=true
Almost a million people fled New York's Mean Streets during the decade for the safer, more stable suburbs, a population decline that took more than 20 years to reverse.
When discussing the current crisis, Mayor Michael Bloomberg, now seeking a third term, promises that he will not allow the city to return to the darkness of those days, although he stresses that it faces "giant financial problems."
"I know some are concerned that city services will erode," he recently told reporters. "Let me remind you that the city went down that road in the 1970s ... I can just tell you that we are not going to make that mistake again."
But behind all the rhetoric, there are signs of a city under growing stress, including a rise in homelessness that's driving more families to shelters and last year's 57 percent spike in bank robberies.
http://www.reuters.com/article/domesticNews/idUSTRE50Q6IH20090127?feedType=RSS&feedName=domesticNews&rpc=22&sp=true
Tuesday, January 27, 2009
Looks Like Bernie Really Pissed Off the Wrong Trust-Funders
Not long ago we stressed how it would be completely not okay to try to kill Bernie Madoff. If, however, his Florida mansion were to be subjected to hilarious pranks until the end of time, like the briefly missing statue or the toilet-papering it got yesterday, that would probably be fine. A few heroic teens called in to the Palm Beach Post to take credit for this latest act of defiance, calling it retaliation for the loss of their trust funds. Best part is, the anonymous teens claim their vigilantism was sanctioned by their parents —Anyway, while it's gratifying to see Madoff get his comeuppance, it's also a little deflating that these teens doled out the same punishment to the man who ruined their lives — whose grifting will force them to work for their money — that they would usually reserve for random, blameless houses on Halloween.
http://nymag.com/daily/intel/2009/01/bernie_madoff_pissed_off_the_w.html
http://nymag.com/daily/intel/2009/01/bernie_madoff_pissed_off_the_w.html
Entrepreneur Watch ‘09: SAC Capital’s shrink starts consulting biz
We know how bad last year was for the hedge fund industry: investment losses of 18 percent, and a 48 percent decline in total assets thanks to fleeing investors. If you're a hedge fund manager, you're understandably stressed out. It's time to hit the couch.
Or so says Dr. Ari Kiev, who has been SAC Capital's very own in-house Dr. Phil for the past 16 years. Kiev announced last week that he is forming a new consulting firm, Kiev Consulting, to help hedge funds deal with the pressure from this market turmoil and economic downturn.
Kiev had been consulting almost exclusively for Steven Cohen's hedge fund, but based on the number of calls he's gotten in the past year from other fund managers seeking help, he thought it was time to open up the rest of the industry to his services.
"Hedge funds have more worries about drawdowns, problems managing portfolios, and implementing the behavioral changes required to adhere to good risk practices," he said when reached by phone on Thursday.
A licensed psychiatrist, Kiev previously worked with Olympic athletes, helping them establish goals and maintain focus in the face of high anxiety situations. Cohen heard about him and brought him on board to coach his analysts and traders in similar accomplishments. Since then, Kiev has published several books on mastering risk and trading strategies.
His role with hedge funds is part management consultant, part behavioral scientist. A losing trader is much like the Olympic ice skater who can't complete his triple jump: performance issues. Kiev helps them overcome their fears and put their minds in the place where they can believe it's possible to achieve their goals. And if they have to sell a Porsche or two to pay those shrink bills, what the hey, it’s worth it!
http://www.portfolio.com/views/blogs/daily-brief/2009/01/15/steve-cohens-shrink-in-high-demand
Or so says Dr. Ari Kiev, who has been SAC Capital's very own in-house Dr. Phil for the past 16 years. Kiev announced last week that he is forming a new consulting firm, Kiev Consulting, to help hedge funds deal with the pressure from this market turmoil and economic downturn.
Kiev had been consulting almost exclusively for Steven Cohen's hedge fund, but based on the number of calls he's gotten in the past year from other fund managers seeking help, he thought it was time to open up the rest of the industry to his services.
"Hedge funds have more worries about drawdowns, problems managing portfolios, and implementing the behavioral changes required to adhere to good risk practices," he said when reached by phone on Thursday.
A licensed psychiatrist, Kiev previously worked with Olympic athletes, helping them establish goals and maintain focus in the face of high anxiety situations. Cohen heard about him and brought him on board to coach his analysts and traders in similar accomplishments. Since then, Kiev has published several books on mastering risk and trading strategies.
His role with hedge funds is part management consultant, part behavioral scientist. A losing trader is much like the Olympic ice skater who can't complete his triple jump: performance issues. Kiev helps them overcome their fears and put their minds in the place where they can believe it's possible to achieve their goals. And if they have to sell a Porsche or two to pay those shrink bills, what the hey, it’s worth it!
http://www.portfolio.com/views/blogs/daily-brief/2009/01/15/steve-cohens-shrink-in-high-demand
Sad, Sad Tale: From world's biggest hedge fund to pariah…
At the start of this decade Iceland would have made an unlikely candidate for the first sovereign-state domino to fall in the financial meltdown. A country with a population the size of Coventry, it was famous for fish, thermal power, prohibitively expensive alcohol and the odd premier league footballer.
Today the word Iceland conjures up an entirely different impression; a country that turned itself into the world's biggest hedge fund and is now paying the price.
Here's what happened. In the final quarter of the 20th century financial markets were gradually liberalised so that what were once domestic markets became one global market.
In the early part of this decade inflation fell in most of the western world as a result of the recession triggered by the dotcom collapse and the flood of cheap imports into the west from Asia. Interest rates fell in most of the developed world, and in Japan, which had been in almost permanent recession since the early 1990s, they were almost zero. Pension funds had made big losses on their ill-judged investments in new technology shares and were looking to make amends. This phenomenon was known as the search for yield and resulted in a flow of funds from Tokyo to Reykjavik.
Iceland had relatively high interest rates, so investors borrowed heavily in Japanese yen and bought Icelandic bonds. Money flooded into Iceland and its big banks borrowed $120bn (£85bn) on the international markets – six times the size of the country's GDP. This is the sort of leverage normally associated with hedge funds, which borrow money for their speculative plays. The money was recycled into other European economies, including Britain where Icelandic investors bought up large parts of the high street, and all was well while the bubble continued to inflate.
http://www.guardian.co.uk/world/2009/jan/26/iceland-hedge-fund
Today the word Iceland conjures up an entirely different impression; a country that turned itself into the world's biggest hedge fund and is now paying the price.
Here's what happened. In the final quarter of the 20th century financial markets were gradually liberalised so that what were once domestic markets became one global market.
In the early part of this decade inflation fell in most of the western world as a result of the recession triggered by the dotcom collapse and the flood of cheap imports into the west from Asia. Interest rates fell in most of the developed world, and in Japan, which had been in almost permanent recession since the early 1990s, they were almost zero. Pension funds had made big losses on their ill-judged investments in new technology shares and were looking to make amends. This phenomenon was known as the search for yield and resulted in a flow of funds from Tokyo to Reykjavik.
Iceland had relatively high interest rates, so investors borrowed heavily in Japanese yen and bought Icelandic bonds. Money flooded into Iceland and its big banks borrowed $120bn (£85bn) on the international markets – six times the size of the country's GDP. This is the sort of leverage normally associated with hedge funds, which borrow money for their speculative plays. The money was recycled into other European economies, including Britain where Icelandic investors bought up large parts of the high street, and all was well while the bubble continued to inflate.
http://www.guardian.co.uk/world/2009/jan/26/iceland-hedge-fund
Deal of the Week: Richard Fuld 'sold' mansion to wife for $100
The disgraced chief exec of Lehman Brothers transferred ownership of a $14 million Florida mansion to his wife for $100 in a possible attempt to move assets beyond the reach of infuriated investors of the collapsed bank.
Richard Fuld, who led the 158-year-old investment bank to its demise last September, sold the beach-front house to his wife, Kathleen, for $100 (£72) on November 10, according to Marin County real estate records.
The couple had previously jointly owned the Jupiter Island property, which was valued at $13.75million when they bought it in March 2004.
Cityfile.com, the New York website that uncovered the secret sale, speculated: “Could Fuld be worried about the flurry of lawsuits from incensed shareholders and creditors?” Need you ask?
The 3.3-acre property is one of five luxury homes owned by the Fulds, who spend most of their time at their eight-bedroom mansion in Greenwich, Connecticut.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5594623.ece
Richard Fuld, who led the 158-year-old investment bank to its demise last September, sold the beach-front house to his wife, Kathleen, for $100 (£72) on November 10, according to Marin County real estate records.
The couple had previously jointly owned the Jupiter Island property, which was valued at $13.75million when they bought it in March 2004.
Cityfile.com, the New York website that uncovered the secret sale, speculated: “Could Fuld be worried about the flurry of lawsuits from incensed shareholders and creditors?” Need you ask?
The 3.3-acre property is one of five luxury homes owned by the Fulds, who spend most of their time at their eight-bedroom mansion in Greenwich, Connecticut.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5594623.ece
Your Tax Dollars at Work: Citi’s New $50 Million Jet
When we first broke the news last month that Citigroup was selling off two of its jets, we thought the bank was looking to cut costs as it spiraled towards bankruptcy. Apparently not! The Post reported this morning that the bank is plunking down $50 million on a brand-new Dassault Falcon 7X. The decision to purchase the plane was reportedly made two years ago, although Citi still intends to take possession of it—assuming, that is, politicians in Washington don't come up with a way to scuttle the deal. (Senator Carl Levin said this afternoon that he plans to lobby the Treasury Department to "stop this absurdity from occurring.") The good news is that if the sale does go through, when Pandit is eventually fired and Citigroup is nationalized, we'll all be entitled to free trips, right?
http://cityfile.com/
http://cityfile.com/
Monday, January 26, 2009
The New Villain of Wall Street
It's official: Former Merrill Lynch CEO, John Thain, the man once credited with "revolutionizing" the New York Stock Exchange and Goldman Sachs, is the new most-hated man on Wall Street. Across the board this week, coverage of his $1.2 million office redecoration and his subsequent forced resignation was infused with disgust. In review, briefly:
• "Mr. Thain's behind-scenes-lobbying for his own bonus turned into a public embarrassment. Most Wall Street chief executives, under fire for big mortgage losses, went without bonuses in 2008. But Mr. Thain lobbied his board's compensation committee for a multimillion dollar bonus, arguing that he helped repair Merrill and had engineered the sale to Bank of America." [WSJ]
• "This was symbolic of a pattern that has developed on Wall Street over this past decade of more and more extravagant, more and more lavish, more and more one-upmanship in all of these visible symbols. This may be the last vestige of a culture that we’re not going to see for many years to come.” [Bloomberg]
http://nymag.com/daily/intel/2009/01/john_thain_replaces_dick_fuld.html
• "Mr. Thain's behind-scenes-lobbying for his own bonus turned into a public embarrassment. Most Wall Street chief executives, under fire for big mortgage losses, went without bonuses in 2008. But Mr. Thain lobbied his board's compensation committee for a multimillion dollar bonus, arguing that he helped repair Merrill and had engineered the sale to Bank of America." [WSJ]
• "This was symbolic of a pattern that has developed on Wall Street over this past decade of more and more extravagant, more and more lavish, more and more one-upmanship in all of these visible symbols. This may be the last vestige of a culture that we’re not going to see for many years to come.” [Bloomberg]
http://nymag.com/daily/intel/2009/01/john_thain_replaces_dick_fuld.html
GOLDMAN'S RESEARCH TEAM HAS LOST CRED
As stocks tank and Wall Street is re-made, even the best and brightest in the financial sector are getting their reputations shredded.
Take, for example, Goldman Sachs, whose equity-research department is regarded as the gold standard on Wall Street but whose list of the best stocks to buy couldn't even keep pace with the sharp decline of the S&P 500 index, according to research done for The Post.
Indeed, Goldman's "Conviction Buy" list of 44 stocks - as its best bets list is called - of July 23, 2008, exactly six months ago last Friday, fell 38.75 percent over the half-year while the S&P 500 was off 35.55 percent over the same period.
Which means Goldman's team of $1 million-a-year equity analysts sold to company clients, for a pretty penny, advice that turned out worse than the performance garnered by a suburban family who invested in a low-cost Vanguard index mutual fund.
http://www.nypost.com/seven/01252009/business/goldmans_research_team_has_lost_cred_151978.htm
Take, for example, Goldman Sachs, whose equity-research department is regarded as the gold standard on Wall Street but whose list of the best stocks to buy couldn't even keep pace with the sharp decline of the S&P 500 index, according to research done for The Post.
Indeed, Goldman's "Conviction Buy" list of 44 stocks - as its best bets list is called - of July 23, 2008, exactly six months ago last Friday, fell 38.75 percent over the half-year while the S&P 500 was off 35.55 percent over the same period.
Which means Goldman's team of $1 million-a-year equity analysts sold to company clients, for a pretty penny, advice that turned out worse than the performance garnered by a suburban family who invested in a low-cost Vanguard index mutual fund.
http://www.nypost.com/seven/01252009/business/goldmans_research_team_has_lost_cred_151978.htm
Hedge' sisters ending feud
The sisters who went to war over authorship of a book called "Hedge Fund Wives" have ended their feud - possibly because there's not much left to fight over.
Natasha Boncompagni, accused by her sister Tatiana of stealing the book manuscript in a dispute over whether Natasha should get credit for contributing to it, said the battle is over. She said Tatiana, the "Gilding Lily" author whose husband is an heir to the Hoover vacuum empire and son of a hedge fund magnate, has enough trouble.
That's because the hedge fund is Fairfield Greenwich Group, which lost $7 billion to Bernard Madoff and faces unending lawsuits from investors.
"Our family has decided to put our differences behind us in order to unite behind my sister and her two young children as she faces the impending litigation associated with the business dealings of her father-in-law," Natasha said in a statement.
She went on to say that her sister never knew the family investment returns were a figment of Madoff's alleged Ponzi scheme.
http://www.nydailynews.com/gossip/2009/01/23/2009-01-23_hedge_sisters_ending_feud_in_part_to_mad.html
Natasha Boncompagni, accused by her sister Tatiana of stealing the book manuscript in a dispute over whether Natasha should get credit for contributing to it, said the battle is over. She said Tatiana, the "Gilding Lily" author whose husband is an heir to the Hoover vacuum empire and son of a hedge fund magnate, has enough trouble.
That's because the hedge fund is Fairfield Greenwich Group, which lost $7 billion to Bernard Madoff and faces unending lawsuits from investors.
"Our family has decided to put our differences behind us in order to unite behind my sister and her two young children as she faces the impending litigation associated with the business dealings of her father-in-law," Natasha said in a statement.
She went on to say that her sister never knew the family investment returns were a figment of Madoff's alleged Ponzi scheme.
http://www.nydailynews.com/gossip/2009/01/23/2009-01-23_hedge_sisters_ending_feud_in_part_to_mad.html
Is the hedge fund party over? Soros doesn’t think so….
"….But at a time when some U.S. hedge funds are beating a retreat from the U.K. capital, one storied fund manager has decided that this is the time to move in. George Soros's fund company is opening offices in London this week and kicking things off with a party in the wealthy Mayfair district, where many hedge funds are located.
"The irony of the Soros fund's arrival at the same time the U.K. pound is plumbing its lowest level in years won't be lost on many in the City.
"Mr. Soros is best-known here for making more than $1 billion in 1992 with bets against the pound that eventually forced Britain to withdraw from the European exchange-rate mechanism, the precursor to the common euro-zone currency."
http://online.wsj.com/article/SB123292226858213613.html?mod=googlenews_wsj
"The irony of the Soros fund's arrival at the same time the U.K. pound is plumbing its lowest level in years won't be lost on many in the City.
"Mr. Soros is best-known here for making more than $1 billion in 1992 with bets against the pound that eventually forced Britain to withdraw from the European exchange-rate mechanism, the precursor to the common euro-zone currency."
http://online.wsj.com/article/SB123292226858213613.html?mod=googlenews_wsj
How State Street Nearly Nuked Itself
How did State Street, the boring old Boston-based custodial bank, get itself caught up in the credit mess? The first paragraph of the Journal's look at the company's woes tells you all you need to know: For much of its two centuries, State Street Corp. has been a stodgy Boston institution. It was content to act as custodian for investment firms' securities and to take care of their mundane back-office chores.
How many sad stories start like this? Replace "Reserve Fund" (the buck-breaking money market fund) for "State Street" and it's basically the same tale. Not surprisingly, the company found a way to get into housing-related securities: It got into conduits, which are instruments that buy such things as asset-backed and mortgage-backed securities, using short-term borrowings. It shifted its investment portfolio from predominantly government bonds into mortgage-backed securities, which rode the housing boom. Then last year, the housing market fell apart and ensnared the financial world -- and State Street -- in a credit crunch.
The article notes that rival Mellon got into the same investments to a lesser degree, and that Chicago's good and grey Northern Trust completely avoided the temptation.
http://www.ft.com/cms/s/0/ab2781a6-e75c-11dd-aef2-0000779fd2ac.html
How many sad stories start like this? Replace "Reserve Fund" (the buck-breaking money market fund) for "State Street" and it's basically the same tale. Not surprisingly, the company found a way to get into housing-related securities: It got into conduits, which are instruments that buy such things as asset-backed and mortgage-backed securities, using short-term borrowings. It shifted its investment portfolio from predominantly government bonds into mortgage-backed securities, which rode the housing boom. Then last year, the housing market fell apart and ensnared the financial world -- and State Street -- in a credit crunch.
The article notes that rival Mellon got into the same investments to a lesser degree, and that Chicago's good and grey Northern Trust completely avoided the temptation.
http://www.ft.com/cms/s/0/ab2781a6-e75c-11dd-aef2-0000779fd2ac.html
A Most Incredible Bonus Announcement
Interesting how some firms handle the issue of bonus announcements in these difficult times. Our friends over at Dresdner Kleinwort apparently issued their staff with their bonus numbers in December. But the letters included a 'material adverse change clause', which made it clear that the number contained therein was really only a provisional figure, which could be subject to change, and that any bonuses anyway wouldn't be paid until the end of February. Fast forward a few weeks, and the firm is now owned by Commerzbank, which itself has now been bailed out by the German government. Surprise, surprise, Dresdner Kleinwort's new management are now 'reviewing' the bonus pot.
One Dresdner Kleinwort staffer told Here Is The City: 'Why give us a letter which basically told us that the bonus number we got given might not end up being the number we would be paid ? Morale here is not good. Already worried about our jobs, many of us are now facing up to the possibility that our bonus numbers are being reviewed. This has just made things worse'.
http://news.hereisthecity.com/news/business_news/8677.cntns
One Dresdner Kleinwort staffer told Here Is The City: 'Why give us a letter which basically told us that the bonus number we got given might not end up being the number we would be paid ? Morale here is not good. Already worried about our jobs, many of us are now facing up to the possibility that our bonus numbers are being reviewed. This has just made things worse'.
http://news.hereisthecity.com/news/business_news/8677.cntns
Did Somebody Say Crunch?: $43,000 Suits Selling Like Hotcakes
Thank the Lord, there's one segment of the economy that's humming right along. But the super-rich have adjusted their spending somewhat, of course: They no longer blow cash on trash "aspirational" brands like Louis Vuitton and Coach. They just buy Harry Winston.
WSJ: As the worst financial crisis since the Great Depression swept the globe in October, the high-end Italian clothier Brioni introduced the most expensive line of men's suits in its history. Made to measure from rare fibers such as vicuna, pashmina and Qiviuk, the suits have price tags as high as $43,000.
"The timing was not fortunate for us," says Andrea Perrone, Brioni's co-chief executive. But Mr. Perrone decided to go ahead, figuring it would send a reassuring signal to customers that Brioni was refusing to compromise on "high-quality initiatives."
These products and price points were in the works long before consumer spending fell sharply this fall. But the labels behind them are taking comfort in the belief that their target customers -- the wealthiest 1% to 2% of consumers world-wide -- are still spending, even if they are buying fewer things. Individuals in this group, whom Mr. Perrone calls the "elite of the elite," have bought 30 of the $43,000 suits.
http://clusterstock.alleyinsider.com/2009/1/43000-suits-selling-like-hotcakes
WSJ: As the worst financial crisis since the Great Depression swept the globe in October, the high-end Italian clothier Brioni introduced the most expensive line of men's suits in its history. Made to measure from rare fibers such as vicuna, pashmina and Qiviuk, the suits have price tags as high as $43,000.
"The timing was not fortunate for us," says Andrea Perrone, Brioni's co-chief executive. But Mr. Perrone decided to go ahead, figuring it would send a reassuring signal to customers that Brioni was refusing to compromise on "high-quality initiatives."
These products and price points were in the works long before consumer spending fell sharply this fall. But the labels behind them are taking comfort in the belief that their target customers -- the wealthiest 1% to 2% of consumers world-wide -- are still spending, even if they are buying fewer things. Individuals in this group, whom Mr. Perrone calls the "elite of the elite," have bought 30 of the $43,000 suits.
http://clusterstock.alleyinsider.com/2009/1/43000-suits-selling-like-hotcakes
Friday, January 23, 2009
Ponzi Roundup: This Week's Newest Madoff Wannabees
Our stomach feels like we’re been on a rollercoaster ride. No surprise, post-Madoff, we've seen so many new Ponzi schemes uncovered that almost as soon as we get our balance back, wham-bang-thank-you-ma’m, there’s another one. We just can't seem to get our land legs back. As the Buffett quote goes, the low tide is catching many pervy swimmers completely bare-ass naked.
Also, the more frauds that get exposed, the less remarkable Madoff seems. Yes, his was was orders of magnitude larger than the others. But since as it is turning out, this kind of fraud is so common, statistics suggest that there'd be one outlayer, by dint of luck if nothing else, that lasts a lot longer than the rest. And with longevity comes size.
This is America; bigger is better, right? Even when it comes to this week’s Ponzi roundup:
* Central Valley Business Times: Six men have been charged with bilking hundreds of people out of $52 million in an Orange County-based Ponzi scheme, California Attorney General Edmund G. Brown Jr. says.More than a thousand people, including retired senior citizens, were swindled through sham real estate projects, using the investors’ money to buy planes, expensive cars and lavish vacations, the attorney general says.
* LA Times: Citing her "devastating impact on a community that can least afford it," a judge Tuesday sentenced an Altadena woman to more than 12 years in federal prison for orchestrating a $17.8-million Ponzi scheme that preyed largely on middle-class African American investors.
* Insurance Journal: An alleged Ponzi scheme by a Grand Island insurance agency that recently filed bankruptcy listing more than $100 million in debt is being investigated. Attorney General Jon Bruning this week authorized the State Patrol's investigation into First Americans Insurance Service and its three principals: James Masat, Stella Levea and Kenneth Mottin -- all of Grand Island. The patrol is working with the departments of insurance and banking to piece together how more than $100 million disappeared -- with Bruning believing some of it may have been paid out to other investors.
* Arizona Republic: Edward Purvis, the man who promised churchgoing investors in Arizona and 12 other states he could make them wealthy while funding Christian causes, was indicted Friday on 43 counts of fraud and theft.Authorities accuse the 40-year-old Chandler man of operating a multimillion Ponzi-scheme through Nakami Chi Group Ministries International. (Hat tip to Clusterstock for this…)
‘Nuff said? Have a good weekend and if you hear an offer that sounds a little bit too good to be true, walk quickly in the other direction.
Also, the more frauds that get exposed, the less remarkable Madoff seems. Yes, his was was orders of magnitude larger than the others. But since as it is turning out, this kind of fraud is so common, statistics suggest that there'd be one outlayer, by dint of luck if nothing else, that lasts a lot longer than the rest. And with longevity comes size.
This is America; bigger is better, right? Even when it comes to this week’s Ponzi roundup:
* Central Valley Business Times: Six men have been charged with bilking hundreds of people out of $52 million in an Orange County-based Ponzi scheme, California Attorney General Edmund G. Brown Jr. says.More than a thousand people, including retired senior citizens, were swindled through sham real estate projects, using the investors’ money to buy planes, expensive cars and lavish vacations, the attorney general says.
* LA Times: Citing her "devastating impact on a community that can least afford it," a judge Tuesday sentenced an Altadena woman to more than 12 years in federal prison for orchestrating a $17.8-million Ponzi scheme that preyed largely on middle-class African American investors.
* Insurance Journal: An alleged Ponzi scheme by a Grand Island insurance agency that recently filed bankruptcy listing more than $100 million in debt is being investigated. Attorney General Jon Bruning this week authorized the State Patrol's investigation into First Americans Insurance Service and its three principals: James Masat, Stella Levea and Kenneth Mottin -- all of Grand Island. The patrol is working with the departments of insurance and banking to piece together how more than $100 million disappeared -- with Bruning believing some of it may have been paid out to other investors.
* Arizona Republic: Edward Purvis, the man who promised churchgoing investors in Arizona and 12 other states he could make them wealthy while funding Christian causes, was indicted Friday on 43 counts of fraud and theft.Authorities accuse the 40-year-old Chandler man of operating a multimillion Ponzi-scheme through Nakami Chi Group Ministries International. (Hat tip to Clusterstock for this…)
‘Nuff said? Have a good weekend and if you hear an offer that sounds a little bit too good to be true, walk quickly in the other direction.
"There will be only two banks left by the end of 2009'
Two years ago, the suggestion that nationalization could happen in the United Kingdom (or the USA) would have been laughable. But the government is now the largest, or only, shareholder in Lloyds/HBOS, RBS and Northern Rock and it seems highly likely that HSBC and Standard Chartered will be the only UK-quoted bank shares by the end of 2009.
Even in these tough markets, however, it is worthwhile to continue to think about the need for long-term, inflation-beating investments to fund or supplement retirement. UK equities can do this over the long term because gross domestic product (GDP) – a measure of economic output – growth will return and plenty of companies are in decent shape to benefit from this.
In one or two years' time inflation could well raise its head again as emerging markets recover from their cyclical slowdown and capital injections start feeding through. Governments by that time also need to start paying down some of their mountains of accumulated debt, and inflation would help to erode this over time. Cash, government bonds and corporate bonds are unable to beat inflation over the long term.
We undoubtedly have a difficult period ahead for the UK economy with its structural bias towards financial services and household consumption. Both of these, we believe, are likely to deliver weak to no growth over the next few years as the deleveraging process continues and regulation intensifies. As a result the outlook for the UK equity market as a whole remains tough. Good stock selection will continue to be crucial. Those areas that have benefited from the credit boom continue to be best avoided.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4298704/Fundamentalist-View-There-will-be-only-two-London-listed-banks-left-by-the-end-of-2009.html
Even in these tough markets, however, it is worthwhile to continue to think about the need for long-term, inflation-beating investments to fund or supplement retirement. UK equities can do this over the long term because gross domestic product (GDP) – a measure of economic output – growth will return and plenty of companies are in decent shape to benefit from this.
In one or two years' time inflation could well raise its head again as emerging markets recover from their cyclical slowdown and capital injections start feeding through. Governments by that time also need to start paying down some of their mountains of accumulated debt, and inflation would help to erode this over time. Cash, government bonds and corporate bonds are unable to beat inflation over the long term.
We undoubtedly have a difficult period ahead for the UK economy with its structural bias towards financial services and household consumption. Both of these, we believe, are likely to deliver weak to no growth over the next few years as the deleveraging process continues and regulation intensifies. As a result the outlook for the UK equity market as a whole remains tough. Good stock selection will continue to be crucial. Those areas that have benefited from the credit boom continue to be best avoided.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4298704/Fundamentalist-View-There-will-be-only-two-London-listed-banks-left-by-the-end-of-2009.html
The Secret sex life of a rogue trader
The five billion euros man, Jérôme Kerviel, stepped involuntarily out of the shadows yesterday, 12 months after he became the most talked about, and sought after, man on the planet. In a lengthy newspaper interview – which he later contested – the alleged rogue trader gave his first extensive public explanation of how he came to lose almost €5bn for the French bank, Société Générale.
M. Kerviel, 32, was quoted as saying that he had taken "orgasmic pleasure" in making "astronomic" bets on financial markets. He said that he had lost "all sense of reality" but that his initial, enormous trading successes had been approved by bank chiefs. His superiors had, he said, called him "the cash machine". They only started to challenge the "crazy risks" he was taking when he began to lose money early last year.
M. Kerviel admitted that he had been briefly racked by guilt when he hit the trading "jackpot" on the day that terrorist bombs exploded in London in July 2005. "I made €500,000 in a few seconds... I was jubilant. Suddenly I realised that I was having fun because people had been hurt by bombs. I ran to the toilet and vomited."
Despite his "moment of weakness" in July 2005, the young trader went on to bet huge, unauthorised sums on the ups and downs of European stock markets – mostly the downs – for another two and a half years.
http://www.independent.co.uk/news/world/europe/jr244me-kerviel-secrets-of-the-rogue-trader-1513434.html
M. Kerviel, 32, was quoted as saying that he had taken "orgasmic pleasure" in making "astronomic" bets on financial markets. He said that he had lost "all sense of reality" but that his initial, enormous trading successes had been approved by bank chiefs. His superiors had, he said, called him "the cash machine". They only started to challenge the "crazy risks" he was taking when he began to lose money early last year.
M. Kerviel admitted that he had been briefly racked by guilt when he hit the trading "jackpot" on the day that terrorist bombs exploded in London in July 2005. "I made €500,000 in a few seconds... I was jubilant. Suddenly I realised that I was having fun because people had been hurt by bombs. I ran to the toilet and vomited."
Despite his "moment of weakness" in July 2005, the young trader went on to bet huge, unauthorised sums on the ups and downs of European stock markets – mostly the downs – for another two and a half years.
http://www.independent.co.uk/news/world/europe/jr244me-kerviel-secrets-of-the-rogue-trader-1513434.html
Jim Rogers: Time to emigrate, People!
When asked his advice for a young person growing up in Britain, Jim Rogers, former partner of George Soros and one of the world's most successful investors, is forthright. "Move to China; learn Chinese." In an interview with The Independent, Mr Rogers warns that Britain will go bankrupt if the Government continues to follow its present policy of attempting to save the banks through subsidy and nationalisation.
He has sold all his sterling assets and has "no position" in sterling, but Mr Rogers reveals that he had been planning to short-sell sterling in the present financial crisis, before recent disparaging remarks about the pound's prospects from his own lips had put paid to those plans. "I should have kept my mouth shut." Mr Rogers had in mind a repeat of his previous coup, when he and Mr Soros's Quantum Fund famously "broke" the Bank of England in 1992, when sterling was forced out of the European exchange rate mechanism, costing UK taxpayers $1bn and making Mr Soros and Mr Rogers correspondingly wealthier.
Sterling is at a 10-year low against the dollar, and Mr Rogers is confident that it will fall to below its previous nadirs, though he has "no idea" where that floor may eventually be. His message is blunt: we used to have North Sea oil and the City of London, but now "you don't have anything to sell... it's a terrible shame".
Mr Rogers is still more forthright in his advice to the Prime Minister, who he urges to resign, but not before abolishing the Bank of England. "They are the ones printing all this money," he said. "Central bankers are not gods or geniuses; why does anyone think they are?"
The US Federal Reserve, Mr Rogers thinks, is also on the road to bankruptcy, and he points out that the US has already had three central banks in its history. Instead, the Singapore-based billionaire urges the UK authorities to take the radical step of allowing the commercial banks to fail. He cites the example of South Korea, Russia and other nations where such financial violence was followed by a renewed burst of growth and prosperity, in a relatively short space of time.
http://www.independent.co.uk/news/business/news/now-its-time-to-emigrate-says-investment-guru-1488629.html
He has sold all his sterling assets and has "no position" in sterling, but Mr Rogers reveals that he had been planning to short-sell sterling in the present financial crisis, before recent disparaging remarks about the pound's prospects from his own lips had put paid to those plans. "I should have kept my mouth shut." Mr Rogers had in mind a repeat of his previous coup, when he and Mr Soros's Quantum Fund famously "broke" the Bank of England in 1992, when sterling was forced out of the European exchange rate mechanism, costing UK taxpayers $1bn and making Mr Soros and Mr Rogers correspondingly wealthier.
Sterling is at a 10-year low against the dollar, and Mr Rogers is confident that it will fall to below its previous nadirs, though he has "no idea" where that floor may eventually be. His message is blunt: we used to have North Sea oil and the City of London, but now "you don't have anything to sell... it's a terrible shame".
Mr Rogers is still more forthright in his advice to the Prime Minister, who he urges to resign, but not before abolishing the Bank of England. "They are the ones printing all this money," he said. "Central bankers are not gods or geniuses; why does anyone think they are?"
The US Federal Reserve, Mr Rogers thinks, is also on the road to bankruptcy, and he points out that the US has already had three central banks in its history. Instead, the Singapore-based billionaire urges the UK authorities to take the radical step of allowing the commercial banks to fail. He cites the example of South Korea, Russia and other nations where such financial violence was followed by a renewed burst of growth and prosperity, in a relatively short space of time.
http://www.independent.co.uk/news/business/news/now-its-time-to-emigrate-says-investment-guru-1488629.html
Fund Earns 109% Return in 2008, Now Clobbered by Withdrawals. Go figure
Brad Golding, manager of CRC Income Products Short Only Fund, more than doubled his investors’ money in 2008. They responded by pulling most of their cash from the Christofferson, Robb & Co. hedge fund in the final two months of the year.
Assets in the Short Only fund declined to $35 million at year-end from as much as $145 million on Oct. 31, according to a letter to clients from Golding, 44. The drop reflects how the global credit crunch has buffeted even top-performing fund managers as potential clients shun risk-taking while current investors seek to raise cash. Managers such as Tudor Investment Corp. and Citadel Investment Group LLC have restricted redemptions, forcing clients to turn to successful funds when they need money.
The fund posted a net return of 109 percent in 2008 after rising 64.7 percent in 2007, the letter said. Christofferson, Robb has renamed the fund CRC Financials Opportunity Fund to reflect a change in investment strategy. The fund is buying more beaten-down stocks, instead of mainly betting against firms “levered to credit or rates,” the letter said.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aMcIl5jiBLFA&refer=us
Assets in the Short Only fund declined to $35 million at year-end from as much as $145 million on Oct. 31, according to a letter to clients from Golding, 44. The drop reflects how the global credit crunch has buffeted even top-performing fund managers as potential clients shun risk-taking while current investors seek to raise cash. Managers such as Tudor Investment Corp. and Citadel Investment Group LLC have restricted redemptions, forcing clients to turn to successful funds when they need money.
The fund posted a net return of 109 percent in 2008 after rising 64.7 percent in 2007, the letter said. Christofferson, Robb has renamed the fund CRC Financials Opportunity Fund to reflect a change in investment strategy. The fund is buying more beaten-down stocks, instead of mainly betting against firms “levered to credit or rates,” the letter said.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aMcIl5jiBLFA&refer=us
LAST, BUT BY NO MEANS LEAST: ZSA ZSA GABOR LOSES MILLIONS IN MADOFF SCAM
Yes, people, legendary actress Zsa Zsa Gabor is facing ruin after falling victim to U.S. fraudster Bernard Madoff.
A number of stars have been affected by the scandal, including Kevin Bacon and Steven Spielberg. And now Gabor, 91, and her ninth husband, Prince Frederic von Anhalt, have revealed Madoff's scam has also cost them millions.
Von Anhalt tells the National Enquirer, "We're mad as hell. We want our money back. We might be forced to sell our Bel Air home, cars, artwork and even our jewellery because of this sick man.
Anhalt is accepting the blame - because he convinced his wife of 23 years to pump her fortunes into Madoff's funds. He adds, "I feel really bad, because Zsa Zsa shouldn't have to worry about the financial mess I've gotten us into. We are taking legal action to recoup some of the money. I'm going to have to make back that money somehow, or we're going to face financial ruin."
http://www.contactmusic.com/news.nsf/article/gabor%20loses%20millions%20in%20madoff%20scam_1092458
A number of stars have been affected by the scandal, including Kevin Bacon and Steven Spielberg. And now Gabor, 91, and her ninth husband, Prince Frederic von Anhalt, have revealed Madoff's scam has also cost them millions.
Von Anhalt tells the National Enquirer, "We're mad as hell. We want our money back. We might be forced to sell our Bel Air home, cars, artwork and even our jewellery because of this sick man.
Anhalt is accepting the blame - because he convinced his wife of 23 years to pump her fortunes into Madoff's funds. He adds, "I feel really bad, because Zsa Zsa shouldn't have to worry about the financial mess I've gotten us into. We are taking legal action to recoup some of the money. I'm going to have to make back that money somehow, or we're going to face financial ruin."
http://www.contactmusic.com/news.nsf/article/gabor%20loses%20millions%20in%20madoff%20scam_1092458
Wednesday, January 21, 2009
“I'm a Banker - Please Don't Tell Anyone….”
"Ever since we bankers caused the global economic crisis, it has become difficult to mention our job publicly without being stigmatised. But trust me, this mess hasn't been my fault. There have always been professions more respectable than others. Doctors usually come at the very top of the list - unless they are plastic surgeons. Further down the spectrum there are the likes of politicians and used car salesmen, and somewhere in-between were the bankers.
"That was, of course, until financial wizardry - in an unhealthy combination with greed, lack of control and incentives to take huge risks without having to fear the downside - caused what currently looks like a serious global economic meltdown.
"Bankers were catapulted onto the front pages of even papers not printed on orange, and their reputation went down to where it was better to admit dealing in drugs and weapons than derivatives. Having been in the thick of it for a while, and probably a fair bit closer than many to the centre of the storm (i.e. securitisation of mortgages and similar 'toxicities'), I should be clear about one thing: I love derivatives. They are economically important and useful tools for transferring risk. But not unlike gunpowder that can be put to good use, they can also be horribly abused…..."
http://life.hereisthecity.com/the_soul_clinic/at_work/840.cntns
"That was, of course, until financial wizardry - in an unhealthy combination with greed, lack of control and incentives to take huge risks without having to fear the downside - caused what currently looks like a serious global economic meltdown.
"Bankers were catapulted onto the front pages of even papers not printed on orange, and their reputation went down to where it was better to admit dealing in drugs and weapons than derivatives. Having been in the thick of it for a while, and probably a fair bit closer than many to the centre of the storm (i.e. securitisation of mortgages and similar 'toxicities'), I should be clear about one thing: I love derivatives. They are economically important and useful tools for transferring risk. But not unlike gunpowder that can be put to good use, they can also be horribly abused…..."
http://life.hereisthecity.com/the_soul_clinic/at_work/840.cntns
MADOFF NEPHEW HOMELESS
Yet another family member has been burned by Bernard Madoff. His Long Island nephew, a 30-year employee of Madoff's company, has to sell his home after being wiped out in the Ponzi scheme.
Charles Wiener was near tears last week as he talked about his uncle's betrayal, calling the $50 billion securities scam "a rotten thing."
"It's emotionally devastating to our entire family," Wiener, 50, said at his Centerport, LI, home, which he was forced to put on the market after the "devastating financial loss" Uncle Bernie forced upon his family.
"We have to move," said a haggard-looking Wiener in his first interview since his uncle's Dec. 11 fraud bust. "I can't afford it anymore." Wiener was not just a Madoff family member but a high-ranking executive at Madoff Securities, joining the firm in 1978. His last listed position was director of administration.
Wiener and wife Carolyn built the four-bedroom, ranch-style home nestled on Northport Harbor, featuring a dock and brick patio in 1971. It's now listed for $1.3 million by Daniel Gale Sotheby's International.
Another former employee of the firm, who spoke on the condition of anonymity, said Wiener worked on the 17th floor of the company's headquarters in Midtown's Lipstick Building. Wiener was in the dark about the shady dealings.
http://www.nypost.com/seven/01182009/news/regionalnews/bernie_a_punk_uncle_150664.htm
Charles Wiener was near tears last week as he talked about his uncle's betrayal, calling the $50 billion securities scam "a rotten thing."
"It's emotionally devastating to our entire family," Wiener, 50, said at his Centerport, LI, home, which he was forced to put on the market after the "devastating financial loss" Uncle Bernie forced upon his family.
"We have to move," said a haggard-looking Wiener in his first interview since his uncle's Dec. 11 fraud bust. "I can't afford it anymore." Wiener was not just a Madoff family member but a high-ranking executive at Madoff Securities, joining the firm in 1978. His last listed position was director of administration.
Wiener and wife Carolyn built the four-bedroom, ranch-style home nestled on Northport Harbor, featuring a dock and brick patio in 1971. It's now listed for $1.3 million by Daniel Gale Sotheby's International.
Another former employee of the firm, who spoke on the condition of anonymity, said Wiener worked on the 17th floor of the company's headquarters in Midtown's Lipstick Building. Wiener was in the dark about the shady dealings.
http://www.nypost.com/seven/01182009/news/regionalnews/bernie_a_punk_uncle_150664.htm
Dr. Doom: US Banking System Insolvent, Another $2.5 Trillion Of Losses Coming
A couple of years ago, when Nouriel Roubini predicted that US financial-system losses would total $1 trillion, everyone thought he was insane. He has since revised his estimate. Now he's looking for $3.6 trillion:
Bloomberg: U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
http://clusterstock.alleyinsider.com/2009/1/roubini-us-banking-system-insolvent-another-25-trillion-of-losses-coming
Bloomberg: U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
http://clusterstock.alleyinsider.com/2009/1/roubini-us-banking-system-insolvent-another-25-trillion-of-losses-coming
Irish Tycoon Commits Suicide
At first we were a bit skeptical about unconfirmed reports of increasing suicides in the business world, but we're coming around. These depressing stories are becoming more and more common:
Times Online UK: The body of property tycoon Patrick Rocca was found at his home at Porterstown, Castleknock, in west Dublin, yesterday morning.
He was found with a single gunshot wound to the head and a firearm nearby has been taken away by forensic investigators, but Gardai have said they are satisfied nobody else was involved.
Mr Rocca, 41, had a fortune which was put at €500million (£462.9m) in 2007 and he is thought to have completed 20 property deals in the UK during the last few years, worth about €300million in total, including €100 million for a distribution centre for retailer Argos in Bedford.
http://clusterstock.alleyinsider.com/2009/1/irish-real-estate-mogul-kills-self
Times Online UK: The body of property tycoon Patrick Rocca was found at his home at Porterstown, Castleknock, in west Dublin, yesterday morning.
He was found with a single gunshot wound to the head and a firearm nearby has been taken away by forensic investigators, but Gardai have said they are satisfied nobody else was involved.
Mr Rocca, 41, had a fortune which was put at €500million (£462.9m) in 2007 and he is thought to have completed 20 property deals in the UK during the last few years, worth about €300million in total, including €100 million for a distribution centre for retailer Argos in Bedford.
http://clusterstock.alleyinsider.com/2009/1/irish-real-estate-mogul-kills-self
Games Rich Guys Play: Stevie Cohen Dominates “Toilet Bowl”
His once mega-successful hedge fund maybe in the shitter but Steve Cohen is back on top where it matters most: the Greenwich plumbing community. Back the truck up to last May, my little Steves, when Russian billionaire Valery Kogan announced his grand plans to build a 27,000 square foot home in Greenwich, replete with 26 toilets. The record number would've thoroughly trounced SC's 19, embarrassed him in his own domain and broken a law (Section 182, clause 17 of the Greenwich town code clearly states that "no home shall exceed the number of waste-removal stations as are found at Casa Cohen"). Cohen was beside himself, and we have it on good authority that the blow SAC took to its portfolios last winter and fall were a direct result of Papa Bear's distress, and not the markets, or idiot traders.
Today, we are pleased to report that after digging deep and putting his back into it, Stevie-boy has turned things around. I don't think I can say definitively that death threats were made without being sued for libel but obviously it was made clear to the Kogans that they were not to cross the big guy on this one. Valery's wife Olga is set to appear before the P&Z Commission with a new proposal, under which the Ruskies' home at 18 Simmons Lane would be outfitted with a mere fifteen toilets. A solid victory, yes, but this thing is FAR from over. We're told by a member of the special toilet task force comprised of star SAC employees SC won't stop until he gets the Kogan's down to 2.5. Then and only then, when order is restored, will he be able to focus positive returns. I don't think I have to tell you we're rooting for him.
http://www.dealbreaker.com/
Today, we are pleased to report that after digging deep and putting his back into it, Stevie-boy has turned things around. I don't think I can say definitively that death threats were made without being sued for libel but obviously it was made clear to the Kogans that they were not to cross the big guy on this one. Valery's wife Olga is set to appear before the P&Z Commission with a new proposal, under which the Ruskies' home at 18 Simmons Lane would be outfitted with a mere fifteen toilets. A solid victory, yes, but this thing is FAR from over. We're told by a member of the special toilet task force comprised of star SAC employees SC won't stop until he gets the Kogan's down to 2.5. Then and only then, when order is restored, will he be able to focus positive returns. I don't think I have to tell you we're rooting for him.
http://www.dealbreaker.com/
Tuesday, January 20, 2009
Obama and a Smarter Stimulus
We've just witnessed the swearing in of our next president, and while tears did not come to our eyes, we’ve got a good feeling about Obama at the helm for the next four years, after all those years of laissez faire and gross mismanagement.
We’re really not into poltics, but it seems to us that he’s starting off on the right foot.
In the words of the New Yorker’s James Suroweicki; “Cutting taxes is usually a surefire political winner. Yet Barack Obama’s plan to include more than a hundred billion dollars in individual tax rebates in his stimulus package has earned him criticism from both ends of the political spectrum. Critics in his own party think the rebate, which Obama wants to distribute by reducing people’s withholding payments, will be too small to make a difference—the equivalent of an extra forty dollars or so a month. Naysayers from the right maintain that, because the tax rebate is a onetime event rather than a permanent reduction in tax rates, it will have only a negligible effect. Skeptics on both sides worry that most people will save the rebate rather than spend it.
“The criticism isn’t unwarranted. The record of past tax rebates is checkered, and forty bucks a month doesn’t sound like much. But the very things that seem unusual about Obama’s rebate plan—that it will be handed out by reducing withholding, instead of in one lump sum, and that it will add a small but steady amount to Americans’ take-home pay—are precisely why it’s more likely to succeed.
“Past tax rebates, as many economists have argued in recent weeks, haven’t seemed to boost consumption as much as was hoped. Some estimates suggest that when a rebate was handed out in 2001 less than half of it was spent. And while the results of last year’s rebate seem to have been somewhat more encouraging, much of it still went unspent. One explanation for why rebates don’t have a bigger impact is that they don’t affect what Milton Friedman called people’s “permanent income.” Friedman argued that people’s spending is determined by what they think their income will be over time: they change their spending habits only if they think they’re going to be permanently wealthier or poorer. We’re not big fans of Friedman, but if you’ve been in a store other than a supermarket lately, you can see that the American people aren’t exactly optimistic at the moment. “
Maybe a fresh start and the Obama stimulus is exactly what we need. God only knows we need something. Everywhere we look, the old ways have practically ruined us. Even if nothing else goes wrong, it’s going to take years to pull out of the hole we (and the rest of the world) is in.
http://www.newyorker.com/talk/financial/2009/01/26/090126ta_talk_surowiecki
We’re really not into poltics, but it seems to us that he’s starting off on the right foot.
In the words of the New Yorker’s James Suroweicki; “Cutting taxes is usually a surefire political winner. Yet Barack Obama’s plan to include more than a hundred billion dollars in individual tax rebates in his stimulus package has earned him criticism from both ends of the political spectrum. Critics in his own party think the rebate, which Obama wants to distribute by reducing people’s withholding payments, will be too small to make a difference—the equivalent of an extra forty dollars or so a month. Naysayers from the right maintain that, because the tax rebate is a onetime event rather than a permanent reduction in tax rates, it will have only a negligible effect. Skeptics on both sides worry that most people will save the rebate rather than spend it.
“The criticism isn’t unwarranted. The record of past tax rebates is checkered, and forty bucks a month doesn’t sound like much. But the very things that seem unusual about Obama’s rebate plan—that it will be handed out by reducing withholding, instead of in one lump sum, and that it will add a small but steady amount to Americans’ take-home pay—are precisely why it’s more likely to succeed.
“Past tax rebates, as many economists have argued in recent weeks, haven’t seemed to boost consumption as much as was hoped. Some estimates suggest that when a rebate was handed out in 2001 less than half of it was spent. And while the results of last year’s rebate seem to have been somewhat more encouraging, much of it still went unspent. One explanation for why rebates don’t have a bigger impact is that they don’t affect what Milton Friedman called people’s “permanent income.” Friedman argued that people’s spending is determined by what they think their income will be over time: they change their spending habits only if they think they’re going to be permanently wealthier or poorer. We’re not big fans of Friedman, but if you’ve been in a store other than a supermarket lately, you can see that the American people aren’t exactly optimistic at the moment. “
Maybe a fresh start and the Obama stimulus is exactly what we need. God only knows we need something. Everywhere we look, the old ways have practically ruined us. Even if nothing else goes wrong, it’s going to take years to pull out of the hole we (and the rest of the world) is in.
http://www.newyorker.com/talk/financial/2009/01/26/090126ta_talk_surowiecki
Buffett :U.S. in an ‘Economic Pearl Harbor’
The U.S. is facing an “economic Pearl Harbor” that has spread fear throughout the country, billionaire investor Warren Buffett told Tom Brokaw in an interview broadcast yesterday on Dateline NBC.
“We have a negative feedback cycle going on right now,” Buffett said, according to a transcript of the interview on CNBC’s Web site. “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”
Buffett, the chairman of Berkshire Hathaway Inc., said Barack Obama is “the absolute right commander in chief” to guide the country through the financial crisis. Obama, 47, will be sworn in as the 44th U.S. president tomorrow in Washington. He can “convey to the American people what needs to be done, not to expect miracles, that it’s going to take time,” Buffett, 78, said in the interview.
Buffett declined to predict how long the economy will remain under duress, except to say that he doesn’t expect a recovery to take five years. He contrasted the current economic crisis with the period “three or four years ago,” when “everybody lent you more and more on a house that kept going up, and you could keep spending money you didn’t have.”
Buffett said the economic slump is the worst since World War II, though not as severe as the Great Depression. He said “it’s never paid to bet against America,” and that the country would come through the crisis. “But it’s not always a smooth ride.”
http://www.bloomberg.com/apps/news?pid=20601208&sid=a3lI4cKxPngg&refer=finance
“We have a negative feedback cycle going on right now,” Buffett said, according to a transcript of the interview on CNBC’s Web site. “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”
Buffett, the chairman of Berkshire Hathaway Inc., said Barack Obama is “the absolute right commander in chief” to guide the country through the financial crisis. Obama, 47, will be sworn in as the 44th U.S. president tomorrow in Washington. He can “convey to the American people what needs to be done, not to expect miracles, that it’s going to take time,” Buffett, 78, said in the interview.
Buffett declined to predict how long the economy will remain under duress, except to say that he doesn’t expect a recovery to take five years. He contrasted the current economic crisis with the period “three or four years ago,” when “everybody lent you more and more on a house that kept going up, and you could keep spending money you didn’t have.”
Buffett said the economic slump is the worst since World War II, though not as severe as the Great Depression. He said “it’s never paid to bet against America,” and that the country would come through the crisis. “But it’s not always a smooth ride.”
http://www.bloomberg.com/apps/news?pid=20601208&sid=a3lI4cKxPngg&refer=finance
Fears of the next Madoff as Florida fund manager goes missing
The disappearance of a Florida hedge fund manager has raised the possibility of another Madoff-style scandal in the United States, with fears mounting that an estimated $350m (£242m) of investments may have evaporated.
Police in Sarasota, a city of 52,000 people south of Tampa, have called in the FBI to help in the hunt for Arthur Nadel, president of Scoop Management, who was last seen by his wife when he left home for work on Wednesday.
Nadel's green Subaru car was found at Sarasota's airport on Thursday. The 76-year-old called his stepson that day to try to retrieve a letter interpreted by family members as a possible suicide note.
Associates at Nadel's firm have told clients that the company's funds appear to be empty. In a letter to investors, Nadel's business partner, Neil Moody, said the funds "may have virtually no remaining value". The Securities and Exchange Commission, the US financial watchdog, has begun an investigation.
Moody said Scoop was facing hefty redemption calls from customers who wanted to take out their money. The case has drawn comparisons with the scandal surrounding the Wall Street financier Bernard Madoff, who is accused of hiding losses of $50bn.
Scoop's clients include an estimated 300 local residents and non-profit organisations. The local YMCA Foundation had $1.1m invested, originally a gift from Nadel's business partner, given on condition it was managed by the firm.
http://www.guardian.co.uk/business/2009/jan/19/sarasota-financial-scandal
Police in Sarasota, a city of 52,000 people south of Tampa, have called in the FBI to help in the hunt for Arthur Nadel, president of Scoop Management, who was last seen by his wife when he left home for work on Wednesday.
Nadel's green Subaru car was found at Sarasota's airport on Thursday. The 76-year-old called his stepson that day to try to retrieve a letter interpreted by family members as a possible suicide note.
Associates at Nadel's firm have told clients that the company's funds appear to be empty. In a letter to investors, Nadel's business partner, Neil Moody, said the funds "may have virtually no remaining value". The Securities and Exchange Commission, the US financial watchdog, has begun an investigation.
Moody said Scoop was facing hefty redemption calls from customers who wanted to take out their money. The case has drawn comparisons with the scandal surrounding the Wall Street financier Bernard Madoff, who is accused of hiding losses of $50bn.
Scoop's clients include an estimated 300 local residents and non-profit organisations. The local YMCA Foundation had $1.1m invested, originally a gift from Nadel's business partner, given on condition it was managed by the firm.
http://www.guardian.co.uk/business/2009/jan/19/sarasota-financial-scandal
On the trail of Madoff's missing millions
When Bernard Madoff entered Manhattan's federal court-house on Wednesday morning, underneath his trademark black trench coat sat a blue bullet-proof vest. The vest - appearing to be a standard issue New York Police Department flak jacket - signified not only the seriousness with which his security detail are taking his safety, but also the number of death threats made against a man whose name has become synonymous with all that is wrong on Wall Street.
In New York, "Bernie'' Madoff is public enemy number one - with at least one passer-by outside the court urging him to "Do the right thing: jump''. In just a month, Mr Madoff has gone from a man best known in financial and Jewish circles for his generous charitable giving and delivering healthy annual returns to investors to one who has led pensioners, charities and individuals to lose their life's savings, bankrupting funds and banks alike with apparently little regard for whom he was taking money from.
For the 70-year-old American is the alleged orchestrator of a fraudulent investment scheme - known as a Ponzi - that saw him channel money from new investors to old investors, fraudulently channelling in excess of $50bn (£ 33.9bn) if his alleged December confession to his sons is to be believed….
http://www.telegraph.co.uk/finance/financetopics/bernard-madoff/4278129/Bernard-Madoff-On-the-trail-of-Madoffs-missing-millions.html
In New York, "Bernie'' Madoff is public enemy number one - with at least one passer-by outside the court urging him to "Do the right thing: jump''. In just a month, Mr Madoff has gone from a man best known in financial and Jewish circles for his generous charitable giving and delivering healthy annual returns to investors to one who has led pensioners, charities and individuals to lose their life's savings, bankrupting funds and banks alike with apparently little regard for whom he was taking money from.
For the 70-year-old American is the alleged orchestrator of a fraudulent investment scheme - known as a Ponzi - that saw him channel money from new investors to old investors, fraudulently channelling in excess of $50bn (£ 33.9bn) if his alleged December confession to his sons is to be believed….
http://www.telegraph.co.uk/finance/financetopics/bernard-madoff/4278129/Bernard-Madoff-On-the-trail-of-Madoffs-missing-millions.html
'The Biggest Loser'
The Royal Bank of Scotland has come out and said that it is likely to post a full-year 2008 loss of $41bn. The bank said that it may post a full-year loss before exceptional goodwill impairments of up to $12bn, and that it faces an impairment charge of up to $29bn on its investment in ABN Amro. A loss of this magnitude will be the largest in British corporate history.
http://news.hereisthecity.com/news/business_news/8662.cntns
http://news.hereisthecity.com/news/business_news/8662.cntns
Wealth Watch ’09: 10 status symbols slated to become post-recession relics
If the financial crisis has a silver lining, it is the decline of the overpriced, over-hyped status economy. You know, the one built on bling and Hummers and Louis Vuitton for the masses. The past decade may have had its excesses, but none were as stupefying as the $300,000 (€ 224,030) watch that doesn’t tell time.
So I have come up with a list of 10 symbols of conspicuous consumption that I hope will disappear in the coming Age of Thrift.
1. Live birthday performances by Christina Aguilera.
2. Shadow Yachts
3. Homes with 26 toilets
4. Oligarchs
5. The $100 million, diamond-encrusted skull
6. Paris Hilton
7. The Hermes helicopter
8. Personal arborists
9. “Million dollar” cocktails with edible gold leaf
10. The word “luxury”
http://www.wealth-bulletin.com/rich-life/rich-monitor/content/3352769696/
So I have come up with a list of 10 symbols of conspicuous consumption that I hope will disappear in the coming Age of Thrift.
1. Live birthday performances by Christina Aguilera.
2. Shadow Yachts
3. Homes with 26 toilets
4. Oligarchs
5. The $100 million, diamond-encrusted skull
6. Paris Hilton
7. The Hermes helicopter
8. Personal arborists
9. “Million dollar” cocktails with edible gold leaf
10. The word “luxury”
http://www.wealth-bulletin.com/rich-life/rich-monitor/content/3352769696/
Monday, January 19, 2009
Hedge Funds, Unhinged
Kenneth C. Griffin, the head of the Citadel Investment Group, whose funds lost roughly $10 billion last year. Citadel has blocked some withdrawals.
LAST summer, Kenneth C. Griffin and his wife, Anne, hedge fund managers both, were so rich that they did something most wealthy couples don’t do until much later in life.
Still in their 30s, they hired a Ph.D. student in economics to help dole out their money to charities.
Fast-forward six months, and Mr. Griffin, who built the Citadel Investment Group into one of the largest hedge funds in the world, has seen the value of his funds plunge by roughly $10 billion — one of the biggest amounts lost in the hedge fund carnage last year. He was down 55 percent while the average fund was down 18 percent. For Mr. Griffin, it is a failing as personal as they come. Sitting back in his chair, gazing uneasily at the skyline here, he points to a new patch of gray hair when asked about the toll of his losses.
Two out of three hedge funds lost money last year, and according to agreements with investors, their managers are supposed to recoup all losses before they start skimming fees from their profits again. That could take years. And it’s unclear whether these traders, so accustomed to flush times, will stick it out long enough to make investors whole again
“Last year was a dramatic year for the world’s largest financial institutions,” he says. “We were not immune.”
Mr. Griffin has basked in praise — whiz kid, wunderkind, the next Warren Buffett — ever since he began trading from his Harvard dorm room 20 years ago and then moved to Chicago to start his hedge fund. In recent years, his firm handily took in more than $1 billion annually.
But now, the whiz kid has lost so much money that it is unclear whether he can make it all back. That reality is playing out among thousands of troubled hedge funds drowning in losses.
.
http://www.nytimes.com/2009/01/18/business/18hedge.html?_r=1&th&emc=th
LAST summer, Kenneth C. Griffin and his wife, Anne, hedge fund managers both, were so rich that they did something most wealthy couples don’t do until much later in life.
Still in their 30s, they hired a Ph.D. student in economics to help dole out their money to charities.
Fast-forward six months, and Mr. Griffin, who built the Citadel Investment Group into one of the largest hedge funds in the world, has seen the value of his funds plunge by roughly $10 billion — one of the biggest amounts lost in the hedge fund carnage last year. He was down 55 percent while the average fund was down 18 percent. For Mr. Griffin, it is a failing as personal as they come. Sitting back in his chair, gazing uneasily at the skyline here, he points to a new patch of gray hair when asked about the toll of his losses.
Two out of three hedge funds lost money last year, and according to agreements with investors, their managers are supposed to recoup all losses before they start skimming fees from their profits again. That could take years. And it’s unclear whether these traders, so accustomed to flush times, will stick it out long enough to make investors whole again
“Last year was a dramatic year for the world’s largest financial institutions,” he says. “We were not immune.”
Mr. Griffin has basked in praise — whiz kid, wunderkind, the next Warren Buffett — ever since he began trading from his Harvard dorm room 20 years ago and then moved to Chicago to start his hedge fund. In recent years, his firm handily took in more than $1 billion annually.
But now, the whiz kid has lost so much money that it is unclear whether he can make it all back. That reality is playing out among thousands of troubled hedge funds drowning in losses.
.
http://www.nytimes.com/2009/01/18/business/18hedge.html?_r=1&th&emc=th
Bush, Paulson face ‘cold shower’ with blind trusts
Ex-President George W. Bush and members of his Cabinet are about to find out what most Americans already have had to confront: Whether the worst financial crisis since the Great Depression has hurt their wealth. Next week, Bush, Treasury Secretary Henry Paulson and Energy Secretary Samuel Bodman — all millionaires — will get to look at the holdings in their blind investment trusts for the first time since they took office.
“This will be a shocking cold shower,” said Stan Brand, who specializes in ethics at the Brand Law Group PC and is a former counsel to the U.S. House of Representatives.
When Bush began running for president in 1999, he handed control over his investments to Northern Trust Co., the same Chicago-based institution where President-elect Barack Obama and his wife, Michelle, have their checking account and home mortgage, and luckily for its customers, a bank too dumb to understand the mortgage-backed securities business. Bush, worth as much as $20 million last year, said he doesn’t know whether the economy’s decline has eroded his wealth.
“I can’t tell you,” he said on CNN’s “Larry King Live” Jan. 13. “But I’m confident it has.”
The use of blind trusts is often voluntary, as public officials seek a way of minimizing any potential conflicts of interest.
Once they transfer their assets, officials receive no information on how their wealth is invested and can’t direct the management of the trust. Individuals do receive reports on the total value of the investments quarterly.
Opening their investment statements from their advisers may be painful. Last year, credit markets seized up, equity markets sank and the economy entered its second recession under Bush’s presidency.
The Standard & Poor’s 1500 Index of companies, ranging from Exxon Mobil Corp. to 4Kids Entertainment Inc., fell 38 percent in 2008 while the MSCI World Index of shares in 23 countries plunged 42 percent.
Hedge funds lost 12.3 percent, according to the Eurekahedge Hedge Fund Index of 2,000 funds worldwide.
The UBS Bloomberg Constant Maturity Commodity Index, a gauge of energy, industrial metals, precious metals, agriculture and livestock markets, dropped 33 percent.
Bush, Paulson and Bodman could have benefited from investments in U.S. Treasury bonds, which recorded their biggest annual gain in 14 years. Treasuries returned 14 percent, according to Merrill Lynch & Co.’s Treasury Master index.
http://www.chron.com/disp/story.mpl/nation/6217441.html
“This will be a shocking cold shower,” said Stan Brand, who specializes in ethics at the Brand Law Group PC and is a former counsel to the U.S. House of Representatives.
When Bush began running for president in 1999, he handed control over his investments to Northern Trust Co., the same Chicago-based institution where President-elect Barack Obama and his wife, Michelle, have their checking account and home mortgage, and luckily for its customers, a bank too dumb to understand the mortgage-backed securities business. Bush, worth as much as $20 million last year, said he doesn’t know whether the economy’s decline has eroded his wealth.
“I can’t tell you,” he said on CNN’s “Larry King Live” Jan. 13. “But I’m confident it has.”
The use of blind trusts is often voluntary, as public officials seek a way of minimizing any potential conflicts of interest.
Once they transfer their assets, officials receive no information on how their wealth is invested and can’t direct the management of the trust. Individuals do receive reports on the total value of the investments quarterly.
Opening their investment statements from their advisers may be painful. Last year, credit markets seized up, equity markets sank and the economy entered its second recession under Bush’s presidency.
The Standard & Poor’s 1500 Index of companies, ranging from Exxon Mobil Corp. to 4Kids Entertainment Inc., fell 38 percent in 2008 while the MSCI World Index of shares in 23 countries plunged 42 percent.
Hedge funds lost 12.3 percent, according to the Eurekahedge Hedge Fund Index of 2,000 funds worldwide.
The UBS Bloomberg Constant Maturity Commodity Index, a gauge of energy, industrial metals, precious metals, agriculture and livestock markets, dropped 33 percent.
Bush, Paulson and Bodman could have benefited from investments in U.S. Treasury bonds, which recorded their biggest annual gain in 14 years. Treasuries returned 14 percent, according to Merrill Lynch & Co.’s Treasury Master index.
http://www.chron.com/disp/story.mpl/nation/6217441.html
How Did BofA Get Merrill So Wrong?
In September, Bank of America wanted to show that, with its acquisition of Merrill Lynch, it knew what it was getting into. Now Bank of America is wants to show it had no idea what it was getting into.
The about-face naturally puts the spotlight on the investment bankers–Fox-Pitt Kelton and J. Christopher Flowers–who advised BofA Chief Executive Ken Lewis on the deal. And at the center is Christopher Flowers, a former Goldman Sachs & Co. banker and prominent investor in banks and financial-services firms, who reverted to his old guise of investment banker to advise Bank of America on its acquisition of Merrill Lynch. (Flowers also owns Fox-Pitt Kelton.)
It isn’t unheard-of for investment bankers to advise both buyer and seller. Still, Flowers’ position is somewhat unusual because his familiarity with Merrill Lynch came partly from having kicked its tires on behalf of his own buyout firm just before Bank of America bought it. Now that the Merrill Lynch acquisition has generated $15 billion in unexpected losses in the fourth quarter alone, some are wondering how Lewis–and Thain–could have been assured that Merrill was in better shape than expected and should command a $29-a-share acquisition offer.
Here are Lewis’s own words from the September announcement of the deal: “J.C. Flowers or Chris Flowers is someone we’ve known for quite some time. We’ve done several deals with him. We know his firm very well, and it was fortunate that we did because his firm—he and his firm had done quite an amount of due diligence on Merrill Lynch fairly recently, and it was very, very extensive. They had looked at the marks very comprehensively, so this allowed us to have him and team as an adviser, and just update the information they already had. So that was one of the key ingredients to being able to do this as quickly as we did….I will say that Chris [Flowers'] comment was ‘it’s night and day from the time we first looked at it to now.’ He was very complimentary of what John [Thain] and his team had done in terms of dramatically reducing the marks, in many cases not only—not reducing the marks but getting rid of the assets, which is the best thing to do, so a much lower risk profile than he’d seen earlier on….We actually thought Merrill Lynch’s capital structure was very good and had a lot more of a base of common equity than some others we had seen, so it looks good.”
http://blogs.wsj.com/deals/
The about-face naturally puts the spotlight on the investment bankers–Fox-Pitt Kelton and J. Christopher Flowers–who advised BofA Chief Executive Ken Lewis on the deal. And at the center is Christopher Flowers, a former Goldman Sachs & Co. banker and prominent investor in banks and financial-services firms, who reverted to his old guise of investment banker to advise Bank of America on its acquisition of Merrill Lynch. (Flowers also owns Fox-Pitt Kelton.)
It isn’t unheard-of for investment bankers to advise both buyer and seller. Still, Flowers’ position is somewhat unusual because his familiarity with Merrill Lynch came partly from having kicked its tires on behalf of his own buyout firm just before Bank of America bought it. Now that the Merrill Lynch acquisition has generated $15 billion in unexpected losses in the fourth quarter alone, some are wondering how Lewis–and Thain–could have been assured that Merrill was in better shape than expected and should command a $29-a-share acquisition offer.
Here are Lewis’s own words from the September announcement of the deal: “J.C. Flowers or Chris Flowers is someone we’ve known for quite some time. We’ve done several deals with him. We know his firm very well, and it was fortunate that we did because his firm—he and his firm had done quite an amount of due diligence on Merrill Lynch fairly recently, and it was very, very extensive. They had looked at the marks very comprehensively, so this allowed us to have him and team as an adviser, and just update the information they already had. So that was one of the key ingredients to being able to do this as quickly as we did….I will say that Chris [Flowers'] comment was ‘it’s night and day from the time we first looked at it to now.’ He was very complimentary of what John [Thain] and his team had done in terms of dramatically reducing the marks, in many cases not only—not reducing the marks but getting rid of the assets, which is the best thing to do, so a much lower risk profile than he’d seen earlier on….We actually thought Merrill Lynch’s capital structure was very good and had a lot more of a base of common equity than some others we had seen, so it looks good.”
http://blogs.wsj.com/deals/
The Madoff Fraud’s ’s.Typhoid Mary
Jacob Ezra Merkin was once revered as a wizard of Wall Street, an angel of charity and a lion of Judaic studies. Now he has earned infamy as a destroyer of wealth, a menace to philanthropy, a pariah in some synagogues and a target of a probe by the state attorney general's office.
A single unforgivable deed capsized his fortune, reputation and social standing overnight: He embraced a false prophet of profit named Bernard Madoff. . In reality, his Midas touch was a mirage. Without telling his clients, he steered the bulk of the money into Madoff's $50 billion Ponzi scheme.
As cash evaporated though his network of hedge funds and partnerships - Ascot Partners and Gabriel Capital Corp. in midtown, Ariel Fund Ltd. in the Cayman Islands - Merkin pocketed some $30 million in annual management fees, victims claim.
http://www.nydailynews.com/money/2009/01/17/2009-01-17_famed_for_piety_jacob_merkin_put_faith_a.html
A single unforgivable deed capsized his fortune, reputation and social standing overnight: He embraced a false prophet of profit named Bernard Madoff. . In reality, his Midas touch was a mirage. Without telling his clients, he steered the bulk of the money into Madoff's $50 billion Ponzi scheme.
As cash evaporated though his network of hedge funds and partnerships - Ascot Partners and Gabriel Capital Corp. in midtown, Ariel Fund Ltd. in the Cayman Islands - Merkin pocketed some $30 million in annual management fees, victims claim.
http://www.nydailynews.com/money/2009/01/17/2009-01-17_famed_for_piety_jacob_merkin_put_faith_a.html
Bernie Madoff's Latest Victim: New York City's Real Estate Market
New York City's real-estate market had already been hurt by the general economic downturn when Bernie Madoff came along. Apparently in addition to losing tons of money with the Ponzi schemer, many Madoff investors in New York lost their chance to own new, luxury apartments. They can no longer make the cash down payments required by many high-end buildings on Park Avenue and Fifth Avenue. Meanwhile, investors in Manhattan and Florida are desperately trying to sell their homes.
http://businesssheet.alleyinsider.com/2009/1/bernie-madoffs-latest-victim-new-york-citys-real-estate-market
http://businesssheet.alleyinsider.com/2009/1/bernie-madoffs-latest-victim-new-york-citys-real-estate-market
Don’t worry. The super-rich still rule
In this season of grand and gloomy forecasts, retail experts are unusually united in predicting carnage on the high street but they are slower to agree about the future of shopping for the super rich. You might ask, at a time like this, whether we should even care but I'll get to that later. The crash in the sales of designer handbags has been widely interpreted as a sure-fire indicator that things are really serious for the super rich. At the top end of the market things are more complicated than that.
Examine Covent Garden's Kraken Opus, a 4,000sq ft shop – or should I say shrine – devoted to selling the most expensive books in the world. Prices start at around £3,000 and go up to £20,000. For this you get a book bigger than the average coffee table, packed with signature shots by the world's top photographers and illustrated by some of the world's top artists.
The books weigh about 35kg each and measure about half a metre. Kraken claims to provide: "Greatness immortalised greatly." And they feature celebrities like footballer Diego Maradona and fashion designer Vivienne Westwood, as well as covering The Saatchi Gallery and Formula One. At auction in Dubai, one collector paid $1.6m (£1.08m) for the Manchester United Opus.
http://www.independent.co.uk/opinion/commentators/margareta-pagano-the-superrich-still-rule-our-economy-1214987.html
Examine Covent Garden's Kraken Opus, a 4,000sq ft shop – or should I say shrine – devoted to selling the most expensive books in the world. Prices start at around £3,000 and go up to £20,000. For this you get a book bigger than the average coffee table, packed with signature shots by the world's top photographers and illustrated by some of the world's top artists.
The books weigh about 35kg each and measure about half a metre. Kraken claims to provide: "Greatness immortalised greatly." And they feature celebrities like footballer Diego Maradona and fashion designer Vivienne Westwood, as well as covering The Saatchi Gallery and Formula One. At auction in Dubai, one collector paid $1.6m (£1.08m) for the Manchester United Opus.
http://www.independent.co.uk/opinion/commentators/margareta-pagano-the-superrich-still-rule-our-economy-1214987.html
The real victims of this credit crunch
In past recessions men bore the brunt of job losses but this time it will be different. With more women working in the hardest hit areas - retail and services - it is they who will suffer most, jeopardising their hard earned financial independence and equality at work. Could this downturn reverse the huge economic gains women have made over the past few decades?
If Lehman Brothers had been Lehman Sisters, run by women instead of men, would the credit crunch have happened? It might seem an outlandish question, but to the many thousands of female workers who have lost their jobs the recession may well look like a case of highly-paid men creating a mess, and low-paid women suffering the consequences.
One overlooked aspect of the downturn engulfing the UK is that it is a feminist issue. The default view is that male workers are the main victims of recessions, with women relegated to the role of supportive housewives, consoling their redundant menfolk. This crunch will be different: it is shaping up to be Britain's first fully feminised recession. If the gender aspect of the economic crisis is ignored, it could jeopardise the progress towards equality at work, and threaten the financial independence many women prize and have struggled to achieve, as well as making families more vulnerable through the loss of a large chunk of household income.
There may be other, more positive outcomes for women. Both feminist and mainstream economists have pointed out that the credit crunch is quite literally a man-made disaster, a monster created in the testosterone-drenched environment of Wall Street and the City. There is a growing body of opinion that, if there had been more female decision-makers, the agony could have been avoided. The crunch has emboldened advocates of boardroom diversity, who insist we now need to get more women at the top in financial institutions as a matter of urgency, to prevent it happening again; their hope is that corporate Britain will be reshaped, bringing a healthier gender balance into the upper echelons.
http://www.guardian.co.uk/lifeandstyle/2009/jan/18/women-credit-crunch-ruth-sunderland
If Lehman Brothers had been Lehman Sisters, run by women instead of men, would the credit crunch have happened? It might seem an outlandish question, but to the many thousands of female workers who have lost their jobs the recession may well look like a case of highly-paid men creating a mess, and low-paid women suffering the consequences.
One overlooked aspect of the downturn engulfing the UK is that it is a feminist issue. The default view is that male workers are the main victims of recessions, with women relegated to the role of supportive housewives, consoling their redundant menfolk. This crunch will be different: it is shaping up to be Britain's first fully feminised recession. If the gender aspect of the economic crisis is ignored, it could jeopardise the progress towards equality at work, and threaten the financial independence many women prize and have struggled to achieve, as well as making families more vulnerable through the loss of a large chunk of household income.
There may be other, more positive outcomes for women. Both feminist and mainstream economists have pointed out that the credit crunch is quite literally a man-made disaster, a monster created in the testosterone-drenched environment of Wall Street and the City. There is a growing body of opinion that, if there had been more female decision-makers, the agony could have been avoided. The crunch has emboldened advocates of boardroom diversity, who insist we now need to get more women at the top in financial institutions as a matter of urgency, to prevent it happening again; their hope is that corporate Britain will be reshaped, bringing a healthier gender balance into the upper echelons.
http://www.guardian.co.uk/lifeandstyle/2009/jan/18/women-credit-crunch-ruth-sunderland
Friday, January 16, 2009
HedgeFinger Comment: Sucky weather.
So all you bears out there were getting worried that things were starting to turn and little green shoots were appearing? Well if you had read Billy Liar you would understand that old fashioned liars cannot learn new tricks. The latest rumors are Citi is going to be bailed out again and maybe merged with Bank of America. The new bank would be called The Citi Bank of Merrill. CBM. No, it’s not true. I am just being cute. But it could be true.
Now one thing I am not making up is I am sitting home here in Chicago trying to write this using an ISP that just keeps stalling and gumming up the works. So what are my observations so far? Well, I am pleased to say that if they are like Chicagoans, Americans are hiding their woes very well (unless you wonder into a store virtually empty of customers) and every where I go they are polite and cheerful. I even dared to ventured into my neighborhood Starbucks and chatted to some homeless traders and investment bankers clinging onto used cups and warming their freezing hands. Anything to be out of the double-digit-below-zero wind chill. They couldn't have been happier to talk to me. I did however manage to lose my Cariier tank, but thankfully this is insured by one of the banks the banker who was looking at the watch, worked for. Payback time I guess. And in any case, I shoulda known better. Who wants to dress like a rich dick? The new black is to look poor.
Back in the day, poor people looked poor. No shoes, dirty nails and they smelled. Today, you would be very hard pushed to tell a rich person from a poor person. In fact you would be hard pushed to spot a criminal from an innocent. I mean if you bumped into Bernie Madman Madoff, you would never have guessed. However, the storms are brewing and trust me if I worked in Starbucks I would start to stash the plastic spoons. You never know - who would have thought that the nation's two largest banks would both run into problems at the same time? Everybody knew something was up with Citi, but still....
Anyway, I doth digress. Phillipe, the gay lounge lizard waiter, is forcing me to eat dried chicken and rice. Chicago being, after all my years here, still a foreign country, I want to give him a good impression of us ex-New Yorkers. He might just think we’re all Madoff clones.
Unh huh…Phillipe has called over his boss who is looking at me suspiciously. Like maybe he wants to hide the silverware. Which would make this barely edible meal even less edible. So I better cut this commentary short. Stay warm. Enjoy your weekend.
Now one thing I am not making up is I am sitting home here in Chicago trying to write this using an ISP that just keeps stalling and gumming up the works. So what are my observations so far? Well, I am pleased to say that if they are like Chicagoans, Americans are hiding their woes very well (unless you wonder into a store virtually empty of customers) and every where I go they are polite and cheerful. I even dared to ventured into my neighborhood Starbucks and chatted to some homeless traders and investment bankers clinging onto used cups and warming their freezing hands. Anything to be out of the double-digit-below-zero wind chill. They couldn't have been happier to talk to me. I did however manage to lose my Cariier tank, but thankfully this is insured by one of the banks the banker who was looking at the watch, worked for. Payback time I guess. And in any case, I shoulda known better. Who wants to dress like a rich dick? The new black is to look poor.
Back in the day, poor people looked poor. No shoes, dirty nails and they smelled. Today, you would be very hard pushed to tell a rich person from a poor person. In fact you would be hard pushed to spot a criminal from an innocent. I mean if you bumped into Bernie Madman Madoff, you would never have guessed. However, the storms are brewing and trust me if I worked in Starbucks I would start to stash the plastic spoons. You never know - who would have thought that the nation's two largest banks would both run into problems at the same time? Everybody knew something was up with Citi, but still....
Anyway, I doth digress. Phillipe, the gay lounge lizard waiter, is forcing me to eat dried chicken and rice. Chicago being, after all my years here, still a foreign country, I want to give him a good impression of us ex-New Yorkers. He might just think we’re all Madoff clones.
Unh huh…Phillipe has called over his boss who is looking at me suspiciously. Like maybe he wants to hide the silverware. Which would make this barely edible meal even less edible. So I better cut this commentary short. Stay warm. Enjoy your weekend.
Apples don’t fall too far from the tree Dept.: Madoff's mother tangled with the feds
Accused Ponzi schemer Bernie Madoff was not the first person in his close-knit family to run afoul of federal authorities. A broker-dealer firm registered in the name of Madoff's mother, Sylvia, was effectively forced to close by the U.S. Securities & Exchange Commission more than 40 years ago.
In August 1963, the SEC announced it was "instituting proceedings...to determine whether" 48 broker-dealers, including "Sylvia R. Madoff [doing business as] Gibraltar Securities," had "failed to file reports of their financial condition...and if so, whether their registrations should be revoked."
An SEC litigation release a month later announced hearings in the case of Madoff and many of the other firms in question.
Then, in January 1964, the SEC dismissed administrative proceedings against a number of the firms, including Madoff's, in what appeared to be a deal: No penalties if you promise to stay out of business.
"The firms conceded the violation," the SEC's litigation release noted, "but requested withdrawal of their registrations; and in this connection they represented that they are no longer engaged in the securities business and do not owe any cash or securities to customers. The Commission concluded that the public interest would be served by permitting withdrawal, and discontinued its proceedings."
Despite Sylvia Madoff's SEC registration as a broker-dealer, three high school classmates of Bernard Madoff say they don't recall her being a stockbroker (something that would have been unusual, and memorable, in that era - not to mention theoretically easy to spot given that the firm's address was the Madoff family home in the Laurelton neighborhood of Queens, N.Y.).
But a fourth high-school classmate of Bernard Madoff, Ed Heiberger, says he recalls that it was Madoff's father, Ralph, who "was either a stockbroker or a customer's man" (the latter is the equivalent of a client or account representative).
http://money.cnn.com/2009/01/16/magazines/fortune/madoff_mother.fortune/index.htm
In August 1963, the SEC announced it was "instituting proceedings...to determine whether" 48 broker-dealers, including "Sylvia R. Madoff [doing business as] Gibraltar Securities," had "failed to file reports of their financial condition...and if so, whether their registrations should be revoked."
An SEC litigation release a month later announced hearings in the case of Madoff and many of the other firms in question.
Then, in January 1964, the SEC dismissed administrative proceedings against a number of the firms, including Madoff's, in what appeared to be a deal: No penalties if you promise to stay out of business.
"The firms conceded the violation," the SEC's litigation release noted, "but requested withdrawal of their registrations; and in this connection they represented that they are no longer engaged in the securities business and do not owe any cash or securities to customers. The Commission concluded that the public interest would be served by permitting withdrawal, and discontinued its proceedings."
Despite Sylvia Madoff's SEC registration as a broker-dealer, three high school classmates of Bernard Madoff say they don't recall her being a stockbroker (something that would have been unusual, and memorable, in that era - not to mention theoretically easy to spot given that the firm's address was the Madoff family home in the Laurelton neighborhood of Queens, N.Y.).
But a fourth high-school classmate of Bernard Madoff, Ed Heiberger, says he recalls that it was Madoff's father, Ralph, who "was either a stockbroker or a customer's man" (the latter is the equivalent of a client or account representative).
http://money.cnn.com/2009/01/16/magazines/fortune/madoff_mother.fortune/index.htm
What trades? Madoff made no trades.
A federal agency that regulates brokerage firms says there is no record of Madoff's investment funds placing trades through his brokerage operation. That leaves only two options - either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades.
"There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser," said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.
FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff's broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said.
The finding is one of many facts investigators are poring over as they seek to piece together Madoff's alleged $50 billion Ponzi scheme, according to a lawyer involved in the case. Evidence that Madoff - who made his name as a trader of Nasdaq stocks - did not process any of his investment funds' trades through his own brokerage is a key indicator that he was not making the trades he claimed. A Madoff lawyer, Daniel J. Horwitz, declined to comment on Madoff's trading.
If Madoff was making no real trades, the complicated statements he sent out to customers were apparently fiction - and in fact may have been part of his coverup. Statements were often so complicated that investors had to call representatives of the firm for explanations.
One Boston-area customer's November 2008 statement is six pages long and shows a dizzying list of trades. According to the statement, Madoff purchased stocks including Wal-Mart, IBM, and Intel, as well as options on the Standard & Poor's 100 index. The statement also says he bought and sold shares of the Fidelity Spartan US Treasury Money Market - a fund Fidelity Investments said had been renamed back in 2005.
Moreover, Fidelity, the Boston investment firm, says Madoff was not a client of the firm. That is, Madoff's firm did not interact with any part of Fidelity that deals with investment advisers and other intermediaries that ordinarily make investments.
http://www.boston.com/business/articles/2009/01/15/madoff_might_not_have_made_any_trades/
"There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser," said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.
FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff's broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said.
The finding is one of many facts investigators are poring over as they seek to piece together Madoff's alleged $50 billion Ponzi scheme, according to a lawyer involved in the case. Evidence that Madoff - who made his name as a trader of Nasdaq stocks - did not process any of his investment funds' trades through his own brokerage is a key indicator that he was not making the trades he claimed. A Madoff lawyer, Daniel J. Horwitz, declined to comment on Madoff's trading.
If Madoff was making no real trades, the complicated statements he sent out to customers were apparently fiction - and in fact may have been part of his coverup. Statements were often so complicated that investors had to call representatives of the firm for explanations.
One Boston-area customer's November 2008 statement is six pages long and shows a dizzying list of trades. According to the statement, Madoff purchased stocks including Wal-Mart, IBM, and Intel, as well as options on the Standard & Poor's 100 index. The statement also says he bought and sold shares of the Fidelity Spartan US Treasury Money Market - a fund Fidelity Investments said had been renamed back in 2005.
Moreover, Fidelity, the Boston investment firm, says Madoff was not a client of the firm. That is, Madoff's firm did not interact with any part of Fidelity that deals with investment advisers and other intermediaries that ordinarily make investments.
http://www.boston.com/business/articles/2009/01/15/madoff_might_not_have_made_any_trades/
Dimon warns worse still to come
Jamie Dimon, CEO and chairman of the Board of JP Morgan Chase has warned things will get worse in the US in 2009.
Jamie Dimon, the bank's chairman and CEO, appeased investors by producing a profit after tax of $702m (£481m) in the last three months of the year on sales of $17.2bn. In contrast, most of the bank's competitors are expected to report multi-billion dollar losses for the period.
However, Mr Dimon warned that with the US economy set to deteriorate, JP Morgan will feel the pain along with its peers.
The bank took a further $2.9bn hit by marking down leveraged lending exposures in its investment bank, and a $680m writedown on some private equity investments, part of which related to assets taken on through JP Morgan's purchase of Bear Stearns in March.
But as well as poor performance at its investment bank, JP Morgan also suffered from its retail unit, due to a deterioration in its consumer loan portfolios, adding $4.1bn to its loan reserves.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4249553/JP-Morgan-chairman-Dimon--warns-worse-still-to-come.html
Jamie Dimon, the bank's chairman and CEO, appeased investors by producing a profit after tax of $702m (£481m) in the last three months of the year on sales of $17.2bn. In contrast, most of the bank's competitors are expected to report multi-billion dollar losses for the period.
However, Mr Dimon warned that with the US economy set to deteriorate, JP Morgan will feel the pain along with its peers.
The bank took a further $2.9bn hit by marking down leveraged lending exposures in its investment bank, and a $680m writedown on some private equity investments, part of which related to assets taken on through JP Morgan's purchase of Bear Stearns in March.
But as well as poor performance at its investment bank, JP Morgan also suffered from its retail unit, due to a deterioration in its consumer loan portfolios, adding $4.1bn to its loan reserves.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4249553/JP-Morgan-chairman-Dimon--warns-worse-still-to-come.html
Hedges more likely to sail into the sunset than go down in blaze of glory: study
A variety of euphemisms are often used to describe hedges that close their doors from “going under“, to “collapsed“, to “failures“, to “forced into liquidation“. While colorful imagery is engaging, the reality is actually much more boring. As we have written before, most hedge funds that cease operations do so by simply sailing off into the sunset, not going down in a blaze of glory.
A new academic paper makes this point in spades. Jung-Min Kim of Ohio State University studied hundreds of now-defunct hedge funds and found that most of them closed their doors after a relentless period of poor performance and bleeding assets, not as the result of a sudden violent drawdown as is often assumed. In his words:
“By plotting how the average performance and fund flow of failed funds evolve over time until they fail, I show that, on average, hedge funds fail slowly due to gradual fund outflows following poor performance…...”
Whether fund management economics, (forced) style drift, or impatient investors is the mechanism behind a fund closer, the conclusion is that hedge fund flame-outs are not actually the norm. Instead, most old hedge funds just drift off into the sunset.
Kim goes on to call this approach the “slow hedge fund failure model.” It looks like this…
There are three (3) sets of returns and asset flows depicted in the chart above. The first two lines are the returns and asset flows of Kim’s entire sample of defunct funds. The next two lines show the returns and flows of assets with no lock-ups (around 20% of all defunct funds). This removes the issue of whether a lock-up was somehow responsible for maintaining assets (and to some extent returns) artificially high.
The final two lines described in the chart legend show the returns and asset flows for defunct funds that closed in a month other than their fiscal year-end month (around 85% of all defunct funds). This removes what you might call more orderly closures where managers gave up right at year-end in order to collect one final performance fee cheque.
Regardless of the sub-sample examined, the conclusion is clear: the average defunct hedge fund did not blow up all at once, but instead suffered a slow and painful death.
So what are the mechanisms that lead to the ultimate demise of these funds? Kim suggests a number of possibilities ranging from style drift to “investor impatience” to simply becoming too small to operate profitably.
Kim describes the first of these factors in the following way:
“As a hedge fund becomes concerned that investors are likely to withdraw capital due to poor performance, it may be forced to change its investment policy. In particular, it has to take more positions in liquid assets so that it can meet redemption requests and it has to avoid trades that could lead to sharp losses in the short-term that would accelerate withdrawals. To become more liquid, a fund may have to liquidate some illiquid positions, which can be costly and hence reduce its performance.”
Funds in the sunsets of their lives not only face the need to prepare for their probable impending demises, but they must also deal with an increasingly impatient investor base. In fact, Kim finds that “investor impatience” (defined as “measured by the time distance between the month in which a fund achieves its maximum value and current month.”) is a good predictor of a fund closing its doors.
http://allaboutalpha.com/blog/2009/01/14/academic-study-finds-hedge-funds-more-likely-to-sail-into-the-sunset-than-go-down-in-blaze-of-glory/
A new academic paper makes this point in spades. Jung-Min Kim of Ohio State University studied hundreds of now-defunct hedge funds and found that most of them closed their doors after a relentless period of poor performance and bleeding assets, not as the result of a sudden violent drawdown as is often assumed. In his words:
“By plotting how the average performance and fund flow of failed funds evolve over time until they fail, I show that, on average, hedge funds fail slowly due to gradual fund outflows following poor performance…...”
Whether fund management economics, (forced) style drift, or impatient investors is the mechanism behind a fund closer, the conclusion is that hedge fund flame-outs are not actually the norm. Instead, most old hedge funds just drift off into the sunset.
Kim goes on to call this approach the “slow hedge fund failure model.” It looks like this…
There are three (3) sets of returns and asset flows depicted in the chart above. The first two lines are the returns and asset flows of Kim’s entire sample of defunct funds. The next two lines show the returns and flows of assets with no lock-ups (around 20% of all defunct funds). This removes the issue of whether a lock-up was somehow responsible for maintaining assets (and to some extent returns) artificially high.
The final two lines described in the chart legend show the returns and asset flows for defunct funds that closed in a month other than their fiscal year-end month (around 85% of all defunct funds). This removes what you might call more orderly closures where managers gave up right at year-end in order to collect one final performance fee cheque.
Regardless of the sub-sample examined, the conclusion is clear: the average defunct hedge fund did not blow up all at once, but instead suffered a slow and painful death.
So what are the mechanisms that lead to the ultimate demise of these funds? Kim suggests a number of possibilities ranging from style drift to “investor impatience” to simply becoming too small to operate profitably.
Kim describes the first of these factors in the following way:
“As a hedge fund becomes concerned that investors are likely to withdraw capital due to poor performance, it may be forced to change its investment policy. In particular, it has to take more positions in liquid assets so that it can meet redemption requests and it has to avoid trades that could lead to sharp losses in the short-term that would accelerate withdrawals. To become more liquid, a fund may have to liquidate some illiquid positions, which can be costly and hence reduce its performance.”
Funds in the sunsets of their lives not only face the need to prepare for their probable impending demises, but they must also deal with an increasingly impatient investor base. In fact, Kim finds that “investor impatience” (defined as “measured by the time distance between the month in which a fund achieves its maximum value and current month.”) is a good predictor of a fund closing its doors.
http://allaboutalpha.com/blog/2009/01/14/academic-study-finds-hedge-funds-more-likely-to-sail-into-the-sunset-than-go-down-in-blaze-of-glory/
Who’s Sorry Now? BofA Threatened To Kill Merrill Deal
Bank of America's acquisition of Merrill Lynch is already being referred to as the 'Merger From Hell', but the deal, thrashed out over a pressured weekend in September, is now looking a whole lot worse.
Speculation is rife that Bank of America now needs billions in additional US federal support from the TARP (Troubled Asset Relief Program) in order to complete the Merrill purchase, as Merrill's fourth-quarter losses are thought to be substantially higher than expected. One insider told Here Is The City: 'Merrill's fourth-quarter was horrific, although you do wonder if this isn't simply an opportunity to 'kitchen-sink' everything, so Bank of America can get a fresh start'.
And rumors abound in the press that BofA told the US government last month that it was considering pulling out of the deal due to the Merrill losses. US government officials are thought to have been concerned that a pull-out would result in the failure of Merrill, and extreme systemic damage, so further access to the TARP was negotiated, and the government may also have agreed to cap the amount of losses BofA will need sustain as a result of the deal..
http://news.hereisthecity.com/news/business_news/8645.cntns
Speculation is rife that Bank of America now needs billions in additional US federal support from the TARP (Troubled Asset Relief Program) in order to complete the Merrill purchase, as Merrill's fourth-quarter losses are thought to be substantially higher than expected. One insider told Here Is The City: 'Merrill's fourth-quarter was horrific, although you do wonder if this isn't simply an opportunity to 'kitchen-sink' everything, so Bank of America can get a fresh start'.
And rumors abound in the press that BofA told the US government last month that it was considering pulling out of the deal due to the Merrill losses. US government officials are thought to have been concerned that a pull-out would result in the failure of Merrill, and extreme systemic damage, so further access to the TARP was negotiated, and the government may also have agreed to cap the amount of losses BofA will need sustain as a result of the deal..
http://news.hereisthecity.com/news/business_news/8645.cntns
Laughs are the best meds: : Surgeon demands kidney back from ex-wife
A New York surgeon who donated a kidney to his wife has gone to court to get it back after they split up. Dr Richard Batista, 49, gave up the organ eight years ago when his wife Dawnell fell ill, reports the Daily Telegraph.
But he claims she repaid his kindness by having an affair before filing for divorce, and is demanding compensation for risking his life.
"There's no deeper pain you can ever express than to be betrayed by the person you devoted your life to," he told reporters.
His lawyer Dominic Barbara said he wanted $1.5 million in compensation for the kidney as part of a matrimonial break-up which has dragged on for three years.
Dr Batista volunteered to donate his kidney after he was found to be a suitable match.
http://www.ananova.com/news/story/sm_3152284.html?menu=news.quirkies.rockyrelationships
But he claims she repaid his kindness by having an affair before filing for divorce, and is demanding compensation for risking his life.
"There's no deeper pain you can ever express than to be betrayed by the person you devoted your life to," he told reporters.
His lawyer Dominic Barbara said he wanted $1.5 million in compensation for the kidney as part of a matrimonial break-up which has dragged on for three years.
Dr Batista volunteered to donate his kidney after he was found to be a suitable match.
http://www.ananova.com/news/story/sm_3152284.html?menu=news.quirkies.rockyrelationships
Last but not least: You can't fire me, I'm drunk!
Peru's top court has ruled that workers cannot be fired for being drunk on the job, a decision that was criticized by the government on Wednesday for setting a dangerous precedent.
The Constitutional Tribunal ordered that Pablo Cayo be given his job back as a janitor for the municipality of Chorrillos, which fired him for being intoxicated at work.
The firing was excessive because even though Cayo was drunk, he did not offend or hurt anybody, Fernando Calle, one of the justices, said on Wednesday.
Calle said the court would not revise its decision, despite complaints from the government.
http://www.reuters.com/article/oddlyEnoughNews/idUSTRE50D6J720090114?feedType=RSS&feedName=oddlyEnoughNews&rpc=22&sp=true
The Constitutional Tribunal ordered that Pablo Cayo be given his job back as a janitor for the municipality of Chorrillos, which fired him for being intoxicated at work.
The firing was excessive because even though Cayo was drunk, he did not offend or hurt anybody, Fernando Calle, one of the justices, said on Wednesday.
Calle said the court would not revise its decision, despite complaints from the government.
http://www.reuters.com/article/oddlyEnoughNews/idUSTRE50D6J720090114?feedType=RSS&feedName=oddlyEnoughNews&rpc=22&sp=true
Wednesday, January 14, 2009
Rewarding Greedy Bankers, and Why It Works
There's been a lot of grousing lately about the Treasury's $700 billion bailout program, which, according to its many critics, has accomplished nothing other than line the pockets of undeserving bankers and their shareholders.
Maybe I'm missing something, but I don't see how it's possible to rescue the banking system without rescuing banks. That's not because anyone thought banks or bankers were particularly deserving of public charity or even sympathy -- clearly they weren't. But by last summer, with investors, lenders and depositors running for the exits, there was a genuine fear that the banking system could collapse and bring the whole global economy down with it. To prevent that outcome, the Treasury asked for $700 billion that it could use not only to mount rescues of individual institutions, but also to try to get ahead of the crisis by taking proactive steps to shore up the financial system.
Sure, you can question how the money was used -- many of us have -- but you can't quarrel with the fact that a financial meltdown has been avoided as a direct result of the government's extraordinary interventions. Fannie Mae and Freddie Mac are providing much-needed support to a mortgage market that would be shuttered without them. The orderly wind-down of AIG's book of credit-default swaps prevented the collapse of an enormous financial house of cards. Citigroup was prevented from becoming the next Lehman Brothers, while the balance sheets of the other big banks have been fortified with additional capital in expectation of further significant write-offs.
Who has benefited from all this? Every investor, every household and every business in the United States.
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/13/AR2009011303111.html?hpid=topnews
Maybe I'm missing something, but I don't see how it's possible to rescue the banking system without rescuing banks. That's not because anyone thought banks or bankers were particularly deserving of public charity or even sympathy -- clearly they weren't. But by last summer, with investors, lenders and depositors running for the exits, there was a genuine fear that the banking system could collapse and bring the whole global economy down with it. To prevent that outcome, the Treasury asked for $700 billion that it could use not only to mount rescues of individual institutions, but also to try to get ahead of the crisis by taking proactive steps to shore up the financial system.
Sure, you can question how the money was used -- many of us have -- but you can't quarrel with the fact that a financial meltdown has been avoided as a direct result of the government's extraordinary interventions. Fannie Mae and Freddie Mac are providing much-needed support to a mortgage market that would be shuttered without them. The orderly wind-down of AIG's book of credit-default swaps prevented the collapse of an enormous financial house of cards. Citigroup was prevented from becoming the next Lehman Brothers, while the balance sheets of the other big banks have been fortified with additional capital in expectation of further significant write-offs.
Who has benefited from all this? Every investor, every household and every business in the United States.
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/13/AR2009011303111.html?hpid=topnews
Inquring Minds Want To Know: When will the hedge fund nightmare be over?
Funny how the tools that have worked so well for hedge funds in recent years-shorting and sophisticated trading models-worked beautifully up until last year, when hedge funds had their worst year on record.
With average declines of 18% in 2008; investors clamoring to redeem billions of assets; about 7% of the industry, or 700 funds, shutting their doors in 2008; and Bernard Madoff's $50 billion ponzi scheme giving the industry a bad name, the outlook for hedge funds isn't much better for 2009.
As the Pittsburgh Post-Gazette puts it: "The industry's fall proves that even the quantitative brilliance and market wizardry of elite hedge funds are no magic bullet for investors during brutal times."
Bill Fleckenstein, president of hedge fund Fleckenstein Capital, said hedge funds' "gunslinging," risky approach was appealing in other markets, but not in a prolonged recession.
http://www.onwallstreet.com/asset/article/2655851/hedge-fund-nightmare-not-yet-over.html?pg
With average declines of 18% in 2008; investors clamoring to redeem billions of assets; about 7% of the industry, or 700 funds, shutting their doors in 2008; and Bernard Madoff's $50 billion ponzi scheme giving the industry a bad name, the outlook for hedge funds isn't much better for 2009.
As the Pittsburgh Post-Gazette puts it: "The industry's fall proves that even the quantitative brilliance and market wizardry of elite hedge funds are no magic bullet for investors during brutal times."
Bill Fleckenstein, president of hedge fund Fleckenstein Capital, said hedge funds' "gunslinging," risky approach was appealing in other markets, but not in a prolonged recession.
http://www.onwallstreet.com/asset/article/2655851/hedge-fund-nightmare-not-yet-over.html?pg
Madoff Salesman Blows Off Meeting With Feds
Robert Jaffe, you may remember, steered lots of investors's money to Madoff, particularly Carl Shapiro's, who lost $500+ million. This is a big deal in Massachusetts particularly because of all the money that's now wiped out from local charities. Which is why it's notable that Jaffe blew off a meeting with investigators this morning.
Robert Jaffe, an associate of Bernard L. Madoff, a man accused of operating a $50 billion Ponzi scheme, did not appear at a scheduled meeting with the Massachusetts Securities Division this morning.
A spokesman for the securities division said of Jaffe (right): "He's not coming. What happens next is to be determined."
Jaffe had been issued a subpoena to meet with the division, which is supervised by Massachusetts Secretary of State William F. Galvin, to presumably discuss his knowledge about Madoff, the financier accused of operating a Ponzi scheme. Most likely, Jaffe bailed because his lawyers advised him to do so. (He'll want to testify only once, and others are no doubt likely to subpoena him). But if that's the reason, it's surprising that he just didn't appear.
Robert Jaffe, an associate of Bernard L. Madoff, a man accused of operating a $50 billion Ponzi scheme, did not appear at a scheduled meeting with the Massachusetts Securities Division this morning.
A spokesman for the securities division said of Jaffe (right): "He's not coming. What happens next is to be determined."
Jaffe had been issued a subpoena to meet with the division, which is supervised by Massachusetts Secretary of State William F. Galvin, to presumably discuss his knowledge about Madoff, the financier accused of operating a Ponzi scheme. Most likely, Jaffe bailed because his lawyers advised him to do so. (He'll want to testify only once, and others are no doubt likely to subpoena him). But if that's the reason, it's surprising that he just didn't appear.
What are the chances? Will Someone Kill Bernie Madoff?
Laurence Leamer points out, not all of Bernie Madoff's victims were part of the "acquisitive community overly concerned with wealth and status" that populate the country clubs and ski slopes where Madoff's scheme was marketed by word of mouth. A great many of the victims are rumored to have connection with organized crime of one sort or another. And those people won't be very pleased with the news that the moan who was handling their money was a bigger criminal and more organized than they were.
On Madoff's likely killers:
Whatever cell he sits in, whatever corridor he walks though, and from whatever direction and whatever means, Bernard Madoff must live the rest of his life knowing that at any moment he may die.
If someone kills Bernard Madoff, it may be some job figuring out who it was. One suspect would be the Russian oligarch who six months ago tried to get his money out and when Bernie said no made threatening sounds. Or it may be the Columbia drug lords who invested a purported $300 million with the Ponzi schemer. They are not happy either.
As we pointed out yesterday, it's a testament to the strength of our civilization that Madoff is still alive. We wouldn't be surprised, however, if there are people preparing to test that strength at this very moment
http://clusterstock.alleyinsider.com/2009/1/will-someone-kill-bernie-madoff
On Madoff's likely killers:
Whatever cell he sits in, whatever corridor he walks though, and from whatever direction and whatever means, Bernard Madoff must live the rest of his life knowing that at any moment he may die.
If someone kills Bernard Madoff, it may be some job figuring out who it was. One suspect would be the Russian oligarch who six months ago tried to get his money out and when Bernie said no made threatening sounds. Or it may be the Columbia drug lords who invested a purported $300 million with the Ponzi schemer. They are not happy either.
As we pointed out yesterday, it's a testament to the strength of our civilization that Madoff is still alive. We wouldn't be surprised, however, if there are people preparing to test that strength at this very moment
http://clusterstock.alleyinsider.com/2009/1/will-someone-kill-bernie-madoff
THE BONUS POOL IS BACK!
MORGAN STANLEY, CITI PLAN $3B IN BIG-SHOT HANDOUTS
Morgan Stanley and Citigroup are looking at setting aside between $2 billion and $3 billion to keep top brokers at the wealth-management shop the two banking giants are close to combining, The Post has learned.
The whopping payout would be distributed over time as retention bonuses for top-tier brokers that Morgan Stanley and Citi hope to keep as they look to merge their brokerage operations into a 22,000-strong behemoth.
Morgan Stanley is expected to shell out as much as $3 billion to buy a 51 percent stake in the combination, which would be run as a joint venture led by Morgan Stanley Co-President James Gorman as chairman. The merged entity would comprise Citi's crown jewel Smith Barney and Morgan Stanley's former Dean Witter wealth-management franchise.
The planned retention bonuses would be paid out over a nine-year period. The bulk of the loot would go to brokers at Smith Barney, whose roughly 19,000-person army is expected to account for the lion's share of the combined entity, said a person familiar with the situation.
Sources warned that exact details of the joint venture are still being hammered out and remain very much in flux.
http://www.nypost.com/seven/01132009/business/bonus_pool_is_back_149888.htm
Morgan Stanley and Citigroup are looking at setting aside between $2 billion and $3 billion to keep top brokers at the wealth-management shop the two banking giants are close to combining, The Post has learned.
The whopping payout would be distributed over time as retention bonuses for top-tier brokers that Morgan Stanley and Citi hope to keep as they look to merge their brokerage operations into a 22,000-strong behemoth.
Morgan Stanley is expected to shell out as much as $3 billion to buy a 51 percent stake in the combination, which would be run as a joint venture led by Morgan Stanley Co-President James Gorman as chairman. The merged entity would comprise Citi's crown jewel Smith Barney and Morgan Stanley's former Dean Witter wealth-management franchise.
The planned retention bonuses would be paid out over a nine-year period. The bulk of the loot would go to brokers at Smith Barney, whose roughly 19,000-person army is expected to account for the lion's share of the combined entity, said a person familiar with the situation.
Sources warned that exact details of the joint venture are still being hammered out and remain very much in flux.
http://www.nypost.com/seven/01132009/business/bonus_pool_is_back_149888.htm
Yale’s Swensen: Funds of funds are a ‘cancer’
David Swensen, chief investment officer of Yale’s $17bn endowment, said efforts to emulate Yale’s investment strategy would fail if other institutions use consultants and funds of funds to make investment decisions, instead of hiring a team of in-house professionals, according to a report.
The head of the Yale’s $17 billion endowment believes that funds of funds and consultants are bad for the investment community and “facilitate the flow of ignorant capital”.
“Fund[s] of funds are a cancer on the institutional-investor world,” David Swensen, chief investment officer for Yale’s endowment, told The Wall Street Journal today. “The best managers don’t want fund of funds money because it is unreliable.”
Consultants, he said, “make money by giving advice to as many people as possible. But you outperform by finding inefficiencies most of the market has not yet uncovered. So consultants ultimately end up doing a disservice to investors”.
“Most endowments use fund[s] of funds and consultants, rather than making their own well-informed decisions,” Swensen said. “If you’re going to invest in alternatives, you should be all in, and do it the way Yale does it – with 20 to 25 investment professionals who devote their careers to looking for investment opportunities.”
http://www.privateequityrealestate.net/Article.aspx?article=33564&hashID=277CABD4CED001C5A5BAC7085411208D1B5D189B
The head of the Yale’s $17 billion endowment believes that funds of funds and consultants are bad for the investment community and “facilitate the flow of ignorant capital”.
“Fund[s] of funds are a cancer on the institutional-investor world,” David Swensen, chief investment officer for Yale’s endowment, told The Wall Street Journal today. “The best managers don’t want fund of funds money because it is unreliable.”
Consultants, he said, “make money by giving advice to as many people as possible. But you outperform by finding inefficiencies most of the market has not yet uncovered. So consultants ultimately end up doing a disservice to investors”.
“Most endowments use fund[s] of funds and consultants, rather than making their own well-informed decisions,” Swensen said. “If you’re going to invest in alternatives, you should be all in, and do it the way Yale does it – with 20 to 25 investment professionals who devote their careers to looking for investment opportunities.”
http://www.privateequityrealestate.net/Article.aspx?article=33564&hashID=277CABD4CED001C5A5BAC7085411208D1B5D189B
How to get away with Financial Fraud (It’s harder than it looks)
Disappointed by the alarming dearth of intelligence in the modern criminal mind, and with the eventual goal of providing more interesting and alluring white-collar crime mysteries for our readers, we have developed this guide in order to give the modern financial thief a fighting chance at remaining "at large" for at least 60-90 days after consummating a significant fraud.
Do: Prepare your escape well before your imminent discovery. Rushing things tends to create transparent plans, needlessly involves co-conspirators and makes for bad decision making. (Parking your SUV in the field of view of a video camera when pretending to jump from a local bridge famous for suicide attempts, for instance).
Don't: Lose your cool in the face of time pressure if your plans go awry, or if you failed to make any plans or anticipate your imminent discovery.
Do: Lose the wife/girlfriend/boyfriend. Period. Seriously. No, seriously. You aren't doing her a favor by including her in your plans and forcing upon her the choice of either being a co-conspirator, an accessory before the fact, and probably after the fact, or keeping silent and facing significant prosecutorial pressure to turn on you (which will eventually prevail- how exactly do you think she will handle the asset freeze?)..
Don't: Tell the new girl about your clever escape.
Do: Have a plausible explanation for why your body is not found.
Don't: Watch CSI. (Also known as: Don't try to substitute a body for your own).
Do: Use blood. Taking half a unit a day from yourself for a week or so will give you plenty of blood for any investigator. (Don't let your wife find your stash in the freezer)..
Don't: Use an accelerant that doesn't belong there in the first place.
Do: Consider physics. If you are smart enough to have a pilot's license you are smart enough to know that leaving the clamshell door on your Malibu open is going to increase drag and reduce range. You also know that leaving the autopilot on is going to cause that plane to do its damnedest to manage the flight controls for a slow, measured glide after it runs out of fuel..
Don't: Draw attention to yourself if you are supposed to be "dead." Resist the temptation to send cute postcards from exotic locals to former acquaintances, your wife, your mistress, your boss, your victims, or the FBI. Yes, "The weather is here, wish you were nice," is not a good idea. Do not pose for pictures.
http://dealbreaker.com/2009/01/how-to-properly-escape-capture.php
Do: Prepare your escape well before your imminent discovery. Rushing things tends to create transparent plans, needlessly involves co-conspirators and makes for bad decision making. (Parking your SUV in the field of view of a video camera when pretending to jump from a local bridge famous for suicide attempts, for instance).
Don't: Lose your cool in the face of time pressure if your plans go awry, or if you failed to make any plans or anticipate your imminent discovery.
Do: Lose the wife/girlfriend/boyfriend. Period. Seriously. No, seriously. You aren't doing her a favor by including her in your plans and forcing upon her the choice of either being a co-conspirator, an accessory before the fact, and probably after the fact, or keeping silent and facing significant prosecutorial pressure to turn on you (which will eventually prevail- how exactly do you think she will handle the asset freeze?)..
Don't: Tell the new girl about your clever escape.
Do: Have a plausible explanation for why your body is not found.
Don't: Watch CSI. (Also known as: Don't try to substitute a body for your own).
Do: Use blood. Taking half a unit a day from yourself for a week or so will give you plenty of blood for any investigator. (Don't let your wife find your stash in the freezer)..
Don't: Use an accelerant that doesn't belong there in the first place.
Do: Consider physics. If you are smart enough to have a pilot's license you are smart enough to know that leaving the clamshell door on your Malibu open is going to increase drag and reduce range. You also know that leaving the autopilot on is going to cause that plane to do its damnedest to manage the flight controls for a slow, measured glide after it runs out of fuel..
Don't: Draw attention to yourself if you are supposed to be "dead." Resist the temptation to send cute postcards from exotic locals to former acquaintances, your wife, your mistress, your boss, your victims, or the FBI. Yes, "The weather is here, wish you were nice," is not a good idea. Do not pose for pictures.
http://dealbreaker.com/2009/01/how-to-properly-escape-capture.php
Tuesday, January 13, 2009
What crisis? Hedge funds’ stellar performers
Several hedge funds reported stellar returns last year even as the financial crisis claimed some of the most celebrated Wall Street names, stocks endured their worst year since the Great Depression and credit markets seized up.
Several analysts have predicted that the hedge fund industry might not survive this financial crisis. Even George Soros, the billionaire hedge fund manager, predicted late last year that hedge fund assets would fall by 75 per cent. But funds across a variety of investment strategies managed impressive double-digit returns last year with some reporting numbers that, given the backdrop of dire market conditions, were spectacular, according to investors and funds of hedge funds.
Among the outstanding performers last year were some relatively unknown names such as Cedar Hill Capital Partners, which rose more than 100 per cent, and the Vicis Gamma fund which was up about 90 per cent, according to estimates from funds of hedge funds.
Better-known star performers included Ionic Capital, up almost 20 per cent last year with assets of $3.9bn, having been established at the start of the financial crisis in June 2007 with $600m. Managed futures funds were among the best performers of the year, with Mulvaney Global Partners up more than 98 per cent, and Tudor’s $1bn Tensor Fund up 36 per cent. QIM’s $2.7bn global and managed futures fund was up 12 per cent. Other managed futures funds that performed well included AHL, Winton Capital Management, Blue Trend and Aspect Capital.
http://www.ft.com/cms/s/0/ca910730-e0e8-11dd-b0e8-000077b07658,s01=1.html
Several analysts have predicted that the hedge fund industry might not survive this financial crisis. Even George Soros, the billionaire hedge fund manager, predicted late last year that hedge fund assets would fall by 75 per cent. But funds across a variety of investment strategies managed impressive double-digit returns last year with some reporting numbers that, given the backdrop of dire market conditions, were spectacular, according to investors and funds of hedge funds.
Among the outstanding performers last year were some relatively unknown names such as Cedar Hill Capital Partners, which rose more than 100 per cent, and the Vicis Gamma fund which was up about 90 per cent, according to estimates from funds of hedge funds.
Better-known star performers included Ionic Capital, up almost 20 per cent last year with assets of $3.9bn, having been established at the start of the financial crisis in June 2007 with $600m. Managed futures funds were among the best performers of the year, with Mulvaney Global Partners up more than 98 per cent, and Tudor’s $1bn Tensor Fund up 36 per cent. QIM’s $2.7bn global and managed futures fund was up 12 per cent. Other managed futures funds that performed well included AHL, Winton Capital Management, Blue Trend and Aspect Capital.
http://www.ft.com/cms/s/0/ca910730-e0e8-11dd-b0e8-000077b07658,s01=1.html
Fund Failures Don't Deserve Second Chance, Or Do They?
There are no second acts in American lives, wrote F. Scott Fitzgerald. But that was before the dawn of the hedge-fund industry.
Geoff Grant, co-founder of former London-based hedge fund Peloton, which spectacularly blew up in February 2008 after making an ill-judged leveraged bet on mortgage securities, has successfully raised around $100 million for a new California-based fund, Grant Capital Partners.
That's great news for other hedge fund managers contemplating life after losing all their clients' money. But investors who give managers second chances are doing themselves and the markets no favors.
The hedge-fund industry is already rife with skewed incentives. Mr. Grant's new investors may be showing a touching belief in his ability to learn from past mistakes. But they are also sending a powerful message to other struggling managers that it may be okay to swing the bat that little bit harder, to gamble that little bit more wildly, to take on a little bit more risk, because, if it all goes wrong, you can start all over again.
That's not a healthy message to be sending the hedge fund industry. Far from protecting capital, the average fund posted an 18% loss in 2008, according to Hedge Fund Research. As things stand, hedge fund managers that perform well get to pocket 20% of the upside. But when funds do badly, investors must bear 100% of the losses. For investors, the only protection against reckless risk-taking is the threat that failed managers won't manage money again. Take away that sanction and investors will get what they deserve.
http://online.wsj.com/article/SB123176246092973303.html?mod=googlenews_wsj
Geoff Grant, co-founder of former London-based hedge fund Peloton, which spectacularly blew up in February 2008 after making an ill-judged leveraged bet on mortgage securities, has successfully raised around $100 million for a new California-based fund, Grant Capital Partners.
That's great news for other hedge fund managers contemplating life after losing all their clients' money. But investors who give managers second chances are doing themselves and the markets no favors.
The hedge-fund industry is already rife with skewed incentives. Mr. Grant's new investors may be showing a touching belief in his ability to learn from past mistakes. But they are also sending a powerful message to other struggling managers that it may be okay to swing the bat that little bit harder, to gamble that little bit more wildly, to take on a little bit more risk, because, if it all goes wrong, you can start all over again.
That's not a healthy message to be sending the hedge fund industry. Far from protecting capital, the average fund posted an 18% loss in 2008, according to Hedge Fund Research. As things stand, hedge fund managers that perform well get to pocket 20% of the upside. But when funds do badly, investors must bear 100% of the losses. For investors, the only protection against reckless risk-taking is the threat that failed managers won't manage money again. Take away that sanction and investors will get what they deserve.
http://online.wsj.com/article/SB123176246092973303.html?mod=googlenews_wsj
Inquiring Minds Want to Know: How Citi Can Make $10 Billion Out Of Thin Air
Really, it’s far easier than you think. Even though Citi is being more or less forced by the government to sell one of its most valuable assets at a time of immense market distress, even though Morgan Stanley will only pay Citi something between $2 billion and $3 billion, Citi is expected to book a gain of $10 billion.
That $10 billion will replenish its capital, off-setting nearly all of the net losses Citi suffered in the first nine months of 2008. Of course, it won’t suddenly have $10 billion of cash sitting around. It will simply have an asset—half of the joint venture that is being created by combining its wealth management business with Morgan Stanley’s—that it can count as $10 billion.
That’s right. Because of the magic of accounting, putting its assets into a joint venture half owned by a competitor will allow Citi to suddenly mark-up the value of those assets. The $3 billion paid by Morgan Stanley represents the “make whole” price—the difference between Morgan’s contribution and Citi’s—and could give the whole thing a value of as $20 billion. Citi will own just under half of the JV, which gives it around $10 billion.
To put it another way, the $2 billion paid by Morgan Stanley to Citi creates a new price for Citi’s wealth management assets. Up till now, Citi was presumably carrying Smith Barney at something like $1 billion, slightly more than what it cost when Primerica bought Smith Barney decades ago. It now gets to include the repriced assets at that higher value on its books. And that’s how a $2 billion transfer from Morgan Stanley to Citi nets Citi $10 billion before taxes. Nice math if you can get it, n’cest pas?.
http://clusterstock.alleyinsider.com/2009/1/how-citi-can-make-10-billion-out-of-thin-air
That $10 billion will replenish its capital, off-setting nearly all of the net losses Citi suffered in the first nine months of 2008. Of course, it won’t suddenly have $10 billion of cash sitting around. It will simply have an asset—half of the joint venture that is being created by combining its wealth management business with Morgan Stanley’s—that it can count as $10 billion.
That’s right. Because of the magic of accounting, putting its assets into a joint venture half owned by a competitor will allow Citi to suddenly mark-up the value of those assets. The $3 billion paid by Morgan Stanley represents the “make whole” price—the difference between Morgan’s contribution and Citi’s—and could give the whole thing a value of as $20 billion. Citi will own just under half of the JV, which gives it around $10 billion.
To put it another way, the $2 billion paid by Morgan Stanley to Citi creates a new price for Citi’s wealth management assets. Up till now, Citi was presumably carrying Smith Barney at something like $1 billion, slightly more than what it cost when Primerica bought Smith Barney decades ago. It now gets to include the repriced assets at that higher value on its books. And that’s how a $2 billion transfer from Morgan Stanley to Citi nets Citi $10 billion before taxes. Nice math if you can get it, n’cest pas?.
http://clusterstock.alleyinsider.com/2009/1/how-citi-can-make-10-billion-out-of-thin-air
What Madoff’s Brother Knew (Plenty!)
Peter Madoff was the No. 2 at Madoff Securities. He was close to Bernie. He ran trading, compliance, and technology. Peter and Bernie's offices were steps apart. They skied together. They schmoozed with the salesmen who gathered assets for Madoff Investments. They shared the insistence on black and gray office decor. Peter's daughter Shana ran compliance. Peter once told a subordinate to stop using blue pens because the firm only used black. (Obsessive-compulsiveness apparently ran in the family.)
Peter was the first person Bernie told about the Ponzi Scheme--a day before Bernie told his sons. There is now a question as to why Peter didn't report it immediately, like Bernie's sons.
The biggest red flag for us is that Bernie Madoff ran a huge broker-dealer firm but claimed he made the trades for his investment accounts at broker-dealers in Europe. Why on earth would he do that except to hide what he was doing? And why on earth wouldn't an innocent, whip-smart brother, No. 2 at the firm, who had presumably been involved in every SEC investigation and press article questioning the returns over the years, ask his brother about that (and all the other obvious questions). And then there's the question as to whether Peter had his personal money managed by Bernie. If he didn't, this will be topic A of the investigation. (If he thought Bernie was legit, why wouldn't he?)
It isn't clear if Peter has been asked to cooperate with the continuing investigation being conducted by the Securities and Exchange Commission and the Manhattan U.S. attorney's office. Investigators didn't return calls for comment...
http://clusterstock.alleyinsider.com/2009/1/focus-turns-to-madoffs-brother-peter
Peter was the first person Bernie told about the Ponzi Scheme--a day before Bernie told his sons. There is now a question as to why Peter didn't report it immediately, like Bernie's sons.
The biggest red flag for us is that Bernie Madoff ran a huge broker-dealer firm but claimed he made the trades for his investment accounts at broker-dealers in Europe. Why on earth would he do that except to hide what he was doing? And why on earth wouldn't an innocent, whip-smart brother, No. 2 at the firm, who had presumably been involved in every SEC investigation and press article questioning the returns over the years, ask his brother about that (and all the other obvious questions). And then there's the question as to whether Peter had his personal money managed by Bernie. If he didn't, this will be topic A of the investigation. (If he thought Bernie was legit, why wouldn't he?)
It isn't clear if Peter has been asked to cooperate with the continuing investigation being conducted by the Securities and Exchange Commission and the Manhattan U.S. attorney's office. Investigators didn't return calls for comment...
http://clusterstock.alleyinsider.com/2009/1/focus-turns-to-madoffs-brother-peter
Are Wall Street Suicide Epidemics Real?
Last week, German investor Adolf Merckle, a multibillionaire who lost a fortune on shorted Volkswagen stock, threw himself under a train. Two weeks earlier, Rene-Thierry Magon de la Villehuchet, an heir to French aristocracy and the co-founder of an investment fund whose money vanished in Bernie Madoff’s alleged pyramid scheme, told the cleaning crew at his Madison Avenue office to clear out, sat behind his desk, and slashed his wrists with a box cutter. Five days before that, in London, a hotel worker entered a $750-a-night suite at the Jumeirah Carlton Tower to find the body of Christen Schnor, HSBC’s head of insurance, hanging by a belt in a closet. This spate of financier suicides is already the second such wave in a year: The first commenced with Bear Stearns research supervisor Barry Fox’s 29-story plunge in Fort Lee, New Jersey, on May 22, and was quickly followed by at least two more cases in June and July.
Reports of financial professionals taking their own lives after suffering steep stock-market losses are as old as trading itself. On May 24, 1881, a trader named Attilio Guinio drank poison after losing $200 on Delaware and Lackawanna Railroad shares; another victim of wall-street, read the Times headline. Such deaths inevitably fuel talk about mass banker suicides—a story line that formed after 1929’s Black Thursday and has gotten an airing-out after every Black Weekday since. Now, once again, newspapers and TV anchors fret about it. Pundits from Peggy Noonan to Stephen Colbert joke about it. It’s the subject of Schadenfreude-tinged watercooler talk. But are bear-market banker-suicide epidemics real or apocryphal?
National suicide statistics by occupation have been kept only sporadically over the years, and the studies that have been done aren’t especially comprehensive. That said, the available data appears to suggest that bankers are no more or less likely to kill themselves, in good times or bad, than anyone else. According to Occupation and Suicide, a 2001 work by Dr. Steven Stack of Wayne State University, the riskiest groups are dentists, artists, and certain laborers (physicians also rank high in some studies, perhaps because of their ready access to fatal substances). Even then, occupational stress is only one of the four factors known to contribute to suicide risk, the other three being demographics, “preexisting psychiatric morbidity,” and “differential opportunities for suicide” (e.g., doctors’ access to drugs). There is some demographic overlap between American suicide victims and bankers (both groups are largely white and male), but that’s a correlative, not a causal, relationship. Bankers don’t appear to be any more prone to preexisting psychiatric problems than other groups, nor do they have any special ease in procuring poisons, guns, and the like. They do tend to have access to tall buildings, but judging from newspaper reports and a statement by New York’s chief medical examiner at the time, the immediate aftermath of 1929’s Black Thursday produced fewer suicides than the same period of time in 1928—and just four were high-rise plunges. Black Monday in 1987 also failed to trigger any significant statistical uptick.
http://nymag.com/news/intelligencer/53341/
Reports of financial professionals taking their own lives after suffering steep stock-market losses are as old as trading itself. On May 24, 1881, a trader named Attilio Guinio drank poison after losing $200 on Delaware and Lackawanna Railroad shares; another victim of wall-street, read the Times headline. Such deaths inevitably fuel talk about mass banker suicides—a story line that formed after 1929’s Black Thursday and has gotten an airing-out after every Black Weekday since. Now, once again, newspapers and TV anchors fret about it. Pundits from Peggy Noonan to Stephen Colbert joke about it. It’s the subject of Schadenfreude-tinged watercooler talk. But are bear-market banker-suicide epidemics real or apocryphal?
National suicide statistics by occupation have been kept only sporadically over the years, and the studies that have been done aren’t especially comprehensive. That said, the available data appears to suggest that bankers are no more or less likely to kill themselves, in good times or bad, than anyone else. According to Occupation and Suicide, a 2001 work by Dr. Steven Stack of Wayne State University, the riskiest groups are dentists, artists, and certain laborers (physicians also rank high in some studies, perhaps because of their ready access to fatal substances). Even then, occupational stress is only one of the four factors known to contribute to suicide risk, the other three being demographics, “preexisting psychiatric morbidity,” and “differential opportunities for suicide” (e.g., doctors’ access to drugs). There is some demographic overlap between American suicide victims and bankers (both groups are largely white and male), but that’s a correlative, not a causal, relationship. Bankers don’t appear to be any more prone to preexisting psychiatric problems than other groups, nor do they have any special ease in procuring poisons, guns, and the like. They do tend to have access to tall buildings, but judging from newspaper reports and a statement by New York’s chief medical examiner at the time, the immediate aftermath of 1929’s Black Thursday produced fewer suicides than the same period of time in 1928—and just four were high-rise plunges. Black Monday in 1987 also failed to trigger any significant statistical uptick.
http://nymag.com/news/intelligencer/53341/
The New Paranoia: Hedgies Are Bullish on Gold, Guns, and Inflatable Lifeboats
During the final months of 2008, as the financial markets imploded, talk on trading desks turned to food and water stockpiles, generators, guns, and high-speed inflatable boats. “The system really was about six hours from failing,” says Gene Lange, a manager at a midtown hedge fund, referring to the week in September when Lehman went bust and AIG had to be bailed out. “When you think about how close we were to the precipice, I don’t think it necessarily makes a guy crazy to prepare for the potential worst-case scenario.”
Preparations, in Lange’s case, include a storeroom in his basement in New Jersey stacked high with enough food, water, diapers, and other necessities to last his family six months; a biometric safe to hold his guns; and a 1985 ex-military Chevy K5 Blazer that runs on diesel and is currently being retrofitted for off-road travel. He has also entertained the idea of putting an inflatable speedboat in a storage unit on the West Side, so he could get off the island quickly, and is currently considering purchasing a remote farm where he could hunker down. “If there’s a financial-system breakdown, it could take a year to reset the system, and in that time, what’s going to happen?” asks Lange. If New York turns into a scene out of I Am Legend, he wants to be ready.
While it may look like these Wall Streeters are betting on such a collapse, their embrace of survivalism is an outgrowth of their professional habits of mind: Having observed the economy’s shaky high-wire act from their ringside seats, they are trying to manage their risk and “hedge” against a potential fall. “It’s like insurance,” says an investor who has stockpiled MREs and a hand-cranked radio. “And by the time you need it, it’s way too late.” Leave it for others to weep for the collapse of the social order. These guys would prefer to be in a high-speed boat or ex-military vehicle, heading off toward their fully provisioned compounds in pursuit of the ultimate goal: to win the chaos.
He’s not the only one. In his book Wealth, War, published last year, former Morgan Stanley chief global strategist Barton Biggs advised people to prepare for the possibility of a total breakdown of civil society. A senior analyst whose reports are read at hedge funds all over the city wrote just before Christmas that some of his clients are “so bearish they’ve purchased firearms and safes and are stocking their pantries with soups and canned foods.” This fear is very much reflected in the market—prices of corporate bonds have been so beaten down at various points that they suggest a higher default rate than during the Great Depression. Meanwhile, while the overall gold market has fluctuated, the premium for quarter-ounce gold coins—meaning the difference between the price for gold you can hold in your hand and that for “paper gold,” such as exchange-traded funds—rose to an all-time high of 20 percent. “Gold is transportable, it’s 100 percent liquid, and it’s perfectly divisible in the context of ounces, bars, or coins,” says the head of a California research firm who keeps a supply of it, along with food, water, and guns, on hand. “And most important, there’s no counterparty”—i.e., it’s an investment beholden to no one, and perhaps one of the few assets that will retain value if the financial system collapses. Leaves you speechless, don’t it?
http://nymag.com/news/features/all-new/53372/
Preparations, in Lange’s case, include a storeroom in his basement in New Jersey stacked high with enough food, water, diapers, and other necessities to last his family six months; a biometric safe to hold his guns; and a 1985 ex-military Chevy K5 Blazer that runs on diesel and is currently being retrofitted for off-road travel. He has also entertained the idea of putting an inflatable speedboat in a storage unit on the West Side, so he could get off the island quickly, and is currently considering purchasing a remote farm where he could hunker down. “If there’s a financial-system breakdown, it could take a year to reset the system, and in that time, what’s going to happen?” asks Lange. If New York turns into a scene out of I Am Legend, he wants to be ready.
While it may look like these Wall Streeters are betting on such a collapse, their embrace of survivalism is an outgrowth of their professional habits of mind: Having observed the economy’s shaky high-wire act from their ringside seats, they are trying to manage their risk and “hedge” against a potential fall. “It’s like insurance,” says an investor who has stockpiled MREs and a hand-cranked radio. “And by the time you need it, it’s way too late.” Leave it for others to weep for the collapse of the social order. These guys would prefer to be in a high-speed boat or ex-military vehicle, heading off toward their fully provisioned compounds in pursuit of the ultimate goal: to win the chaos.
He’s not the only one. In his book Wealth, War, published last year, former Morgan Stanley chief global strategist Barton Biggs advised people to prepare for the possibility of a total breakdown of civil society. A senior analyst whose reports are read at hedge funds all over the city wrote just before Christmas that some of his clients are “so bearish they’ve purchased firearms and safes and are stocking their pantries with soups and canned foods.” This fear is very much reflected in the market—prices of corporate bonds have been so beaten down at various points that they suggest a higher default rate than during the Great Depression. Meanwhile, while the overall gold market has fluctuated, the premium for quarter-ounce gold coins—meaning the difference between the price for gold you can hold in your hand and that for “paper gold,” such as exchange-traded funds—rose to an all-time high of 20 percent. “Gold is transportable, it’s 100 percent liquid, and it’s perfectly divisible in the context of ounces, bars, or coins,” says the head of a California research firm who keeps a supply of it, along with food, water, and guns, on hand. “And most important, there’s no counterparty”—i.e., it’s an investment beholden to no one, and perhaps one of the few assets that will retain value if the financial system collapses. Leaves you speechless, don’t it?
http://nymag.com/news/features/all-new/53372/
Fired Wall Streeters, Take Heart: At Least You're Not Married To This Woman
The New York Times investigated the financial stresses and crumbling marriages of families who used to live on fat Wall Street paychecks.
There are some happy stories: More time to watch the kids squabble, somehow retaining the DNA-programmed ability to ignore piles of laundry your wife no longer has time to wash because she's had to go back to work, etc. But business for divorce lawyers is apparently booming, as lots of women decide to dump laid-off husbands who have been transformed into "clickers" (as in, the remote control).
No matter how bad things get, however, all but one of you can at least console yourselves that you're not married to this TriBeCa woman who is married, at least for now, to a Wall Street executive, put it rather bluntly: “My job was to run the household and the children’s lives,” she said. “His job is to provide us with a nice lifestyle.” But his bonus has disappeared, and his annual pay has dropped to $150,000 from $800,000 a year. “Let me just say this,” she said, “I’m still doing my job.”
So much for for richer and poorer.
http://clusterstock.alleyinsider.com/2009/1/fired-wall-streeters-take-heart-at-least-youre-not-married-to-this-woman
There are some happy stories: More time to watch the kids squabble, somehow retaining the DNA-programmed ability to ignore piles of laundry your wife no longer has time to wash because she's had to go back to work, etc. But business for divorce lawyers is apparently booming, as lots of women decide to dump laid-off husbands who have been transformed into "clickers" (as in, the remote control).
No matter how bad things get, however, all but one of you can at least console yourselves that you're not married to this TriBeCa woman who is married, at least for now, to a Wall Street executive, put it rather bluntly: “My job was to run the household and the children’s lives,” she said. “His job is to provide us with a nice lifestyle.” But his bonus has disappeared, and his annual pay has dropped to $150,000 from $800,000 a year. “Let me just say this,” she said, “I’m still doing my job.”
So much for for richer and poorer.
http://clusterstock.alleyinsider.com/2009/1/fired-wall-streeters-take-heart-at-least-youre-not-married-to-this-woman
Monday, January 12, 2009
How to run a hedge fund from your dorm room
By the start of his 9 a.m. class, Weinberg freshman Brian Levin has begun watching his investments. When the markets open, he checks his models to try to predict what will happen in the markets, and then starts formulating investment positions. He calls other professionals and traders on the floor of the Chicago Board of Trade to see what they’re doing that day, or if there are any rumors going around the trading community. He adjusts his investment positions throughout the day until 3 p.m. when the equity market closes.
Levin has been investing since he was 13 years old. Three years ago, he took on clients and founded the hedge fund BDL Capital Advisors, which he still runs today — when he’s not in class. Levin has over forty clients, an office in Vernon Hills, IL, and a snazzy website. Despite the current economic downturn, 2008 was BDL Capital Adviser’s best year yet financially.
“A lot of it was independent research, my own curiosity. I started when I was thirteen just from reading and talking to people,” Levin said. Whenever there was something he wanted to learn, he would look it up himself, or go to the library to research. His friend and classmate, Weinberg freshman Andrew Levin (no relation), attested to Levin’s unusually inquisitive nature: “He is one of a kind in that he wants to know everything,” Andrew said. “If there is something he is unsure about he will admit that to you, research it and then know more about it than you do tomorrow.”
Once Levin learned enough to try the business himself, he invested his bar mitzvah money, and was soon practicing the strategies he would later employ as hedge fund manager. When he was 15, he decided to take on clients. “If I can do this better than someone that’s 20 years older than me,” Levin thought, “then why not?”
Levin’s description of his current work is simple: “I manage an investment fund of investor money.” The transition from investing his own capital to taking on clients was undramatic, he said, because of his experience. In fact, he has an advantage over older investors: “I don’t have to worry about paying bills and whatnot,” Levin said, which makes risk-taking a little easier.
Brian has also enjoyed success and recognition in other areas of his life, particularly academics. During the summer of 2006, Brian was the youngest student in a graduate-level international business course at Harvard Business School, said Dr. Wendy Jeffus, his professor for that course.
“He sat on the front row and always arrived early to the lectures. Although he was a young student, he was a natural leader,” Jeffus said. The next year, she invited Levin back to the class to give a speech. “Brian not only accepted the challenge, but organized a group of students and led a high quality multimedia presentation,” Jeffus said. Levin also completed a thesis on systemic risk in the spring of 2007.
http://www.northbynorthwestern.com/2009/01/15466/how-to-run-a-hedge-fund-from-your-dorm-room/
Levin has been investing since he was 13 years old. Three years ago, he took on clients and founded the hedge fund BDL Capital Advisors, which he still runs today — when he’s not in class. Levin has over forty clients, an office in Vernon Hills, IL, and a snazzy website. Despite the current economic downturn, 2008 was BDL Capital Adviser’s best year yet financially.
“A lot of it was independent research, my own curiosity. I started when I was thirteen just from reading and talking to people,” Levin said. Whenever there was something he wanted to learn, he would look it up himself, or go to the library to research. His friend and classmate, Weinberg freshman Andrew Levin (no relation), attested to Levin’s unusually inquisitive nature: “He is one of a kind in that he wants to know everything,” Andrew said. “If there is something he is unsure about he will admit that to you, research it and then know more about it than you do tomorrow.”
Once Levin learned enough to try the business himself, he invested his bar mitzvah money, and was soon practicing the strategies he would later employ as hedge fund manager. When he was 15, he decided to take on clients. “If I can do this better than someone that’s 20 years older than me,” Levin thought, “then why not?”
Levin’s description of his current work is simple: “I manage an investment fund of investor money.” The transition from investing his own capital to taking on clients was undramatic, he said, because of his experience. In fact, he has an advantage over older investors: “I don’t have to worry about paying bills and whatnot,” Levin said, which makes risk-taking a little easier.
Brian has also enjoyed success and recognition in other areas of his life, particularly academics. During the summer of 2006, Brian was the youngest student in a graduate-level international business course at Harvard Business School, said Dr. Wendy Jeffus, his professor for that course.
“He sat on the front row and always arrived early to the lectures. Although he was a young student, he was a natural leader,” Jeffus said. The next year, she invited Levin back to the class to give a speech. “Brian not only accepted the challenge, but organized a group of students and led a high quality multimedia presentation,” Jeffus said. Levin also completed a thesis on systemic risk in the spring of 2007.
http://www.northbynorthwestern.com/2009/01/15466/how-to-run-a-hedge-fund-from-your-dorm-room/
Five Reasons why 2009:May Be The Year Of The Hedge Fund?
Yes, yes, we know, hedge funds are super-evil now, seriously out of favor, and their leaders subject to mob-lynchings if caught in public by any group larger than 10 (or a group of any size containing any member of Henry Waxman's staff). Despite this, conditions are ripe for a boom in hedge funds. Consider:
1. After this panicked flight to treasuries subsides, there is a lot of cash sitting around with some serious return catching up to do.
2. There's been a serious manager culling, and lots of redemptions. That money is likely to get hungry again.
3. A massive restructuring of the banking sector is killing any number of proprietary desks. There's actually a lot of talent around..
4. No one trusts large institutions anymore. Ironically, even Made-off fit that bill. Small, dedicated capital pools with defined strategies, third party administration and even moderate track records are positioned to do very well.
5. All the really big winners in 2008 (ironically) were hedge funds. (E.g., Paulson & Co.)
You heard it here first.
http://dealbreaker.com/2009/01/2009-year-of-the-hedge-funds.php
1. After this panicked flight to treasuries subsides, there is a lot of cash sitting around with some serious return catching up to do.
2. There's been a serious manager culling, and lots of redemptions. That money is likely to get hungry again.
3. A massive restructuring of the banking sector is killing any number of proprietary desks. There's actually a lot of talent around..
4. No one trusts large institutions anymore. Ironically, even Made-off fit that bill. Small, dedicated capital pools with defined strategies, third party administration and even moderate track records are positioned to do very well.
5. All the really big winners in 2008 (ironically) were hedge funds. (E.g., Paulson & Co.)
You heard it here first.
http://dealbreaker.com/2009/01/2009-year-of-the-hedge-funds.php
Hedges and Fund of Funds: Biting the Hand That Feeds You
This WSJ article about hedge funds of funds contained the following juicy quote from a hedge fund manager, a sentiment widely held but seldom expressed in public:
"Funds of funds are, in general, a highly overrated bunch, many of them attracting people who can't manage money themselves," says Jonathan Trugman, who runs a small New York stockpicking hedge fund, Pendulum Capital Management, that made money in 2008. "You have to be selective about which funds of funds you do business with, because much of it is allocated more by marketers and back-slappers than by true analysts."
True enough, I confess, and Trugman deserves credit for his courage. But I have to laugh, because I am certain that, west of the Hudson River where the rest of the country earns a living, plenty of company CEOs express a similar sentiment, only it goes something like this:
Hedge funds are, in general, a highly overrated bunch, many of them attracting people who can't run companies themselves [but who love to tell others how to] . . .
The universal truth is, human beings simultaneously depend on and resent their dependence on their benefactors. Just as corporate managers resent those who provide the capital they need, hedge fund managers resent the capital providers on whom they depend (funds of funds provide about 40% of hedge fund capital, according to the article). Inject a hedge fund manager with truth serum and within minutes you'll get an earful about how stupid/"It's who you know, not what you know"/marketing-obsessed/short-term oriented a typical fund of funds is.
http://seekingalpha.com/article/114246-hedge-funds-and-funds-of-funds-biting-the-hand-that-feeds-you
"Funds of funds are, in general, a highly overrated bunch, many of them attracting people who can't manage money themselves," says Jonathan Trugman, who runs a small New York stockpicking hedge fund, Pendulum Capital Management, that made money in 2008. "You have to be selective about which funds of funds you do business with, because much of it is allocated more by marketers and back-slappers than by true analysts."
True enough, I confess, and Trugman deserves credit for his courage. But I have to laugh, because I am certain that, west of the Hudson River where the rest of the country earns a living, plenty of company CEOs express a similar sentiment, only it goes something like this:
Hedge funds are, in general, a highly overrated bunch, many of them attracting people who can't run companies themselves [but who love to tell others how to] . . .
The universal truth is, human beings simultaneously depend on and resent their dependence on their benefactors. Just as corporate managers resent those who provide the capital they need, hedge fund managers resent the capital providers on whom they depend (funds of funds provide about 40% of hedge fund capital, according to the article). Inject a hedge fund manager with truth serum and within minutes you'll get an earful about how stupid/"It's who you know, not what you know"/marketing-obsessed/short-term oriented a typical fund of funds is.
http://seekingalpha.com/article/114246-hedge-funds-and-funds-of-funds-biting-the-hand-that-feeds-you
Hedgie Falls Upwards!
Of the half-million Americans thrown out of work last month (shudder), how many do you think single-handedly cost their employers $1 billion? Likely answer: none. Because those guys don’t get fired, they get to leave in good standing and start their own hedge funds. Or at least that’s the story of Boaz Weinstein, a 35-year-old trader for Deutsche Bank who lost $1 billion last fall on bad bets in the credit markets. According to the Journal, his employer announced today that Weinstein was leaving the firm of his own volition, along with fifteen of his co-workers, to take advantage of the once-in-a-lifetime profit opportunities the current market presents.
Weinstein’s departure confirms something old and new about Wall Street. The old: That there is nothing disgraceful about losing a ton of other people’s money, provided you didn’t steal it. The new: That institutions like Deutsche Bank can no longer afford to operate like hedge funds in disguise. Their proprietary trading desks, where they gambled with abandon and made massive profits in the good years, are being more or less dismantled. That will accelerate the talent drain from big institutions to boutique shops.
According to the Journal, Weinstein had been a big moneymaker for years, exploiting price discrepancies in companies’ equity and debt — these margins are usually quite tiny, but if you pile enough leverage into the trade, you can make major coin. Unless, of course, the markets get all jangled up like they did after the Lehman Brothers collapse. Weinstein’s troubles were remarkably similar to those that humbled Citadel, the giant Chicago hedge fund whose main unit dropped more than 50 percent last year.
http://nymag.com/daily/intel/2009/01/boaz_weinstein_proves_failure.html
Weinstein’s departure confirms something old and new about Wall Street. The old: That there is nothing disgraceful about losing a ton of other people’s money, provided you didn’t steal it. The new: That institutions like Deutsche Bank can no longer afford to operate like hedge funds in disguise. Their proprietary trading desks, where they gambled with abandon and made massive profits in the good years, are being more or less dismantled. That will accelerate the talent drain from big institutions to boutique shops.
According to the Journal, Weinstein had been a big moneymaker for years, exploiting price discrepancies in companies’ equity and debt — these margins are usually quite tiny, but if you pile enough leverage into the trade, you can make major coin. Unless, of course, the markets get all jangled up like they did after the Lehman Brothers collapse. Weinstein’s troubles were remarkably similar to those that humbled Citadel, the giant Chicago hedge fund whose main unit dropped more than 50 percent last year.
http://nymag.com/daily/intel/2009/01/boaz_weinstein_proves_failure.html
Madoff's Sister Among the Scammed
Ponzi schemer Bernie Madoff scammed millions from his sister, who is now desperately selling her Florida home, sources told the New York Post.
Sondra Wiener, 74, "has nothing," said one of her neighbors in the BallenIsles Country Club, a gated Palm Beach enclave where she and her husband, Marvin, live alongside such celebrities as Serena and Venus Williams.
"She lost millions in this whole thing," said a source who estimated her loss at $3 million.
In response to questions about their financial straits, Wiener's son, David, said, "Yes, my family's a victim. More so than anybody else. It's very painful." Wiener was one of five family members who received packages filled with jewels allegedly mailed by Madoff and his wife, Ruth, on Christmas Eve. The riches were collected by lawyers in recent weeks.
That was around the time Wiener put her 3,409-square-foot home on the market. She and her husband are asking between $850,000 and $950,000 for the three-bedroom home, according to two separate listings.
"It seems like she was a victim in this," said the neighbor, who was told Wiener is selling off her property in the hopes of starting over. "It didn't seem like she saw it coming. What kind of person scams their own sister?"
http://www.foxnews.com/story/0,2933,479154,00.html
Sondra Wiener, 74, "has nothing," said one of her neighbors in the BallenIsles Country Club, a gated Palm Beach enclave where she and her husband, Marvin, live alongside such celebrities as Serena and Venus Williams.
"She lost millions in this whole thing," said a source who estimated her loss at $3 million.
In response to questions about their financial straits, Wiener's son, David, said, "Yes, my family's a victim. More so than anybody else. It's very painful." Wiener was one of five family members who received packages filled with jewels allegedly mailed by Madoff and his wife, Ruth, on Christmas Eve. The riches were collected by lawyers in recent weeks.
That was around the time Wiener put her 3,409-square-foot home on the market. She and her husband are asking between $850,000 and $950,000 for the three-bedroom home, according to two separate listings.
"It seems like she was a victim in this," said the neighbor, who was told Wiener is selling off her property in the hopes of starting over. "It didn't seem like she saw it coming. What kind of person scams their own sister?"
http://www.foxnews.com/story/0,2933,479154,00.html
Wealth Watch: You want a free ($200,000) Bentley with that?
At least that's what an Arizona home builder is hoping as it tries to unload a pair of multimillion-dollar custom homes that have been languishing on the market for about a year. The homes are located in Paradise Valley, a wealthy Phoenix suburb that's part-time home to heavy metal pioneer Alice Cooper. Each home is selling for about $1 million less than the original price, according to Five Star Development Group in Scottsdale.
One property, dubbed the Old-World European Villa, measures more than 7,800 square feet and is priced at just under $5 million. The second one, named the Tuscan Estate, has five bedrooms, 5 1/2 baths and measures around 7,500 square feet. It's listed for just under $4 million. To sweeten the deal, Five Star said Tuesday it is offering buyers for each of the homes a free 2009 Bentley Continental GT valued at around $200,000.
For buyers who don't dig the Bentley, Five Star is offering either a 50-hour card good for rides on a NetJets aircraft or an annual one-month vacation stay at a Newport Beach Marriott hotel for life..
One might expect that for wealthy buyers, who likely could easily afford a Bentley on their own, the incentive on its face may not be a significant lure. But Five Star says its offer is more about generating buzz and getting the rich folks out to open houses the next couple of weekends.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/10/RE87154OPS.DTL
One property, dubbed the Old-World European Villa, measures more than 7,800 square feet and is priced at just under $5 million. The second one, named the Tuscan Estate, has five bedrooms, 5 1/2 baths and measures around 7,500 square feet. It's listed for just under $4 million. To sweeten the deal, Five Star said Tuesday it is offering buyers for each of the homes a free 2009 Bentley Continental GT valued at around $200,000.
For buyers who don't dig the Bentley, Five Star is offering either a 50-hour card good for rides on a NetJets aircraft or an annual one-month vacation stay at a Newport Beach Marriott hotel for life..
One might expect that for wealthy buyers, who likely could easily afford a Bentley on their own, the incentive on its face may not be a significant lure. But Five Star says its offer is more about generating buzz and getting the rich folks out to open houses the next couple of weekends.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/10/RE87154OPS.DTL
Thursday, January 8, 2009
Financial Body Count this Week: 3 suicides, 1 disappearance
Three prominent financiers/execs have committed suicide this week, and these guys are choosing gruesome ways to go out.
Steven Good swallowed a bullet:
Villehuchet slit his wrists:
Adolf Merckle went with the Anna Karenina exit:
And for good measure, Sonja Kohn “dropped out of sight:”
http://optionarmageddon.ml-implode.com/2009/01/07/spiking-financial-suicides-3-this-week/
Steven Good swallowed a bullet:
Villehuchet slit his wrists:
Adolf Merckle went with the Anna Karenina exit:
And for good measure, Sonja Kohn “dropped out of sight:”
http://optionarmageddon.ml-implode.com/2009/01/07/spiking-financial-suicides-3-this-week/
How much more crap do we have to wade through?
Carmen Reinhart and Kenneth Rogoff have assembled an impressive collection of data and analyses of financial crises through the ages. Their work has shown that the path of America's subprime crisis has been eerily similar to that of other crises. Looking forward, they have some sobering details for what to expect next. Their latest paper, presented at the recent American Economic Association meetings in San Francisco, looked at 13 major financial crises since the Second World War. On average, real housing prices fall 35.5% over six years, real equity prices fall 56% over three years, the unemployment rate rises seven percentage points over 4.8 years, and per capita GDP falls 9.3% over 1.9 years. By those standards, the America is at best about halfway through its crisis.
For the Obama team now contemplating a big fiscal boost for the economy, the most sobering statistic might be this—real public debt rises on average by 86% over three years. This is "driven mainly by sharp falloffs in tax revenue and, in many cases, big surges in government spending to fight the recession," the authors say. "The much ballyhooed bank bailout costs are, in several cases, only a relatively minor contributor to post–financial crisis debt burdens."
My favorite passage is this:
How relevant are historical benchmarks for assessing the trajectory of the current global financial crisis? On the one hand, the authorities today have arguably more flexible monetary policy frameworks, thanks particularly to a less rigid global exchange rate regime. Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s, or in the latter-day Japanese experience. On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors. A few years back many people would have said that improvements in financial engineering had done much to tame the business cycle and limit the risk of financial contagion.
http://www.economist.com/blogs/freeexchange/2009/01/much_more_to_come.cfm
For the Obama team now contemplating a big fiscal boost for the economy, the most sobering statistic might be this—real public debt rises on average by 86% over three years. This is "driven mainly by sharp falloffs in tax revenue and, in many cases, big surges in government spending to fight the recession," the authors say. "The much ballyhooed bank bailout costs are, in several cases, only a relatively minor contributor to post–financial crisis debt burdens."
My favorite passage is this:
How relevant are historical benchmarks for assessing the trajectory of the current global financial crisis? On the one hand, the authorities today have arguably more flexible monetary policy frameworks, thanks particularly to a less rigid global exchange rate regime. Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s, or in the latter-day Japanese experience. On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors. A few years back many people would have said that improvements in financial engineering had done much to tame the business cycle and limit the risk of financial contagion.
http://www.economist.com/blogs/freeexchange/2009/01/much_more_to_come.cfm
Pity Party: U.S. Millionaires lose 30% of their fortunes
The study, by Spectrem Group, the Chicago-based wealth-research firm, found that households with a net worth of $1 million or more say their assets have declined 30% or more. Nearly one-fifth of millionaires have experienced declines of more than 40%.
Nearly all the millionaires surveyed (90%) fear a prolonged economic downturn. Altogether, they believe it will last for another 22 months, and more than half (55%) are concerned they will not have sufficient assets to maintain their present lifestyles.
“The current financial crisis has had a dramatic impact on America’s millionaires, reducing their net worth substantially and threatening their ability to maintain both lifestyles and retirement plans,” said Catherine S. McBreen, Managing Director of Spectrem Group.
Spectrem’s measure of household assets doesn’t include primary real-estate but does include other real-estate, which has dropped precipitously. But for the households in Middle and Upper Richistan, where houses account for a smaller share of net worth, investment losses have been the main wealth killer. In keeping with my theme of the rich-investor revolt, many of the wealthy are blaming their wealth advisers.
According to the Spectrem study, just 36% of millionaires feel their adviser performed well during the crisis and only 14% say they will increase their use of financial advisers in the future.
http://blogs.wsj.com/wealth/2009/01/06/millionaires-lose-30-of-their-fortunes/
Nearly all the millionaires surveyed (90%) fear a prolonged economic downturn. Altogether, they believe it will last for another 22 months, and more than half (55%) are concerned they will not have sufficient assets to maintain their present lifestyles.
“The current financial crisis has had a dramatic impact on America’s millionaires, reducing their net worth substantially and threatening their ability to maintain both lifestyles and retirement plans,” said Catherine S. McBreen, Managing Director of Spectrem Group.
Spectrem’s measure of household assets doesn’t include primary real-estate but does include other real-estate, which has dropped precipitously. But for the households in Middle and Upper Richistan, where houses account for a smaller share of net worth, investment losses have been the main wealth killer. In keeping with my theme of the rich-investor revolt, many of the wealthy are blaming their wealth advisers.
According to the Spectrem study, just 36% of millionaires feel their adviser performed well during the crisis and only 14% say they will increase their use of financial advisers in the future.
http://blogs.wsj.com/wealth/2009/01/06/millionaires-lose-30-of-their-fortunes/
How To Announce A Multi-Billion-Dollar Fraud
Raju didn't panic under the stress and then confess to his sons or anything. He didn't get arrested by the FBI at dawn and then remain mute when accosted by hundreds of waving puffy mikes. He didn't declare his innocence and say he was looking forward to his day in court. He just wrote a detailed, crystal-clear confession to the board and said he was ready to accept the consequences…..
http://clusterstock.alleyinsider.com/2009/1/how-to-announce-a-multi-billion-dollar-fraud
http://clusterstock.alleyinsider.com/2009/1/how-to-announce-a-multi-billion-dollar-fraud
Wednesday, January 7, 2009
Forester: What the best investor of 2008 is buying...
We all know that 2008 was a sucky year for the stock market. But to really put into perspective how terrible it was, get a load of this. Only one mutual fund that focuses on buying U.S. stocks made money in 2008. One!
And the one that did it, the Forester Value fund, barely eked into the black with a 0.4% gain. Still, any increase is certainly impressive when you consider that the S&P 500 plunged 38.5% last year.
I spoke with Forester Value manager Tom Forester back in October to ask him about his investing strategy in such a brutal market and figured that now would be a good time to get his outlook for 2009.
Three months ago, Forester was fairly defensive. Many of his top holdings were in consumer staples companies, such as food giants Kraft and H.J. Heinz. He also said he was buying shares of Wal-Mart and McDonald's, two other companies that tend to do well in times when people are keeping a close watch on what they spend…...
Talkback: Will stocks finish 2009 higher or lower?
But Forester told me yesterday afternoon that while those are still sizable holdings, he's starting to cut back on some of these more "recession-proof" stocks because he's finding better values elsewhere. And what he's buying now may surprise you.
For one, Forester said he's been taking advantage of the massive sell-off in commodities in the past few months, especially oil.
Forester said that in the past few months, he's been purchasing shares of oil refiner Valero Energy (VLO, Fortune 500), exploration and production firm Anadarko Petroleum (APC, Fortune 500) and natural gas company EOG Resources (EOG).
"Nobody can really tell what's going to happen exactly with price of oil. But as oil got closer to $35, many of the stocks seemed more reasonable than they were when oil was closer to $150," he said. "Plus, for the longer term, companies are not finding as much oil as they used to, so prices could go back up. Commodities were oversold."
Black gold isn't the only commodity play that Forester likes. He also said he's recently been attracted to the luster of real gold: he bought shares of gold mining company Newmont Mining (NEM, Fortune 500) in November when the stock was in the mid-$20s. It's now trading at about $39 a share.
Outside of commodities, Forester is also dipping his toe in two areas that have been particularly hit hard during this recession: tech and retail.
Forester already owned a big position in Microsoft when we spoke in October. But, since then, he said he's also bought a chunk of software company Symantec.
Forester said he likes Symantec (SYMC, Fortune 500), which is mainly known for its line of Norton antivirus software, because he thinks consumers and corporations will be less inclined to cut back on security spending.
He said that protecting computers is more "mission critical" -- particularly for businesses -- and this will help the company continue to generate decent revenue and profit growth. Investors seem to agree. The stock was trading around $10 when he bought it in November and now hovers closer to $14.50.
As for retail, Forester said he bought shares of Kohl's (KSS, Fortune 500) late last year on the hope that consumer spending may start to pick up again in the latter half of 2009, and that this will benefit strong operators such as Kohl's. He also said he's looking closely at J.C. Penney (JCP, Fortune 500) but has yet to buy the stock.
"The next six months for me will be a wait-and-see sort of mode. I'm not hugely defensive like I was throughout most of 2008, but I haven't gotten really aggressive yet," he said. "I want to get more aggressive. But we haven't seen this type of recession in nearly two decades. It's going to be longer than the ones we've been used to."
As such, Forester said he's also still relatively cautious about financial stocks. He does own some property and casualty insurance companies, such as Travelers and Allstate. But he's largely steered clear of banks that got caught up in the credit mess that derailed the markets and economy last year.
When I spoke to Forester in October, he told me he was considering buying Morgan Stanley and life insurer Hartford Financial because they were so beaten down. But he avoided pulling the trigger on them, since it soon became increasingly clear that each company still needed to raise more capital. For this reason, Forester said he's only looking at financial stocks that he's convinced won't need to do deals to raise cash that will dilute the investments of current shareholders.
"In the next six months, we will see more financials needing to raise money. And those that don't are the ones I will jump into," he said.
All in all, Forester said he is confident that 2009 will be better than 2008, and he is eager to buy more stocks once it starts to become more clear that this long, painful recession is closer to the end than the beginning.
And even though Forester said he's pleased to have the distinction of being the only long-focused U.S. stock manager to have a winning year last year, he wouldn't mind some more company this year.
http://money.cnn.com/2009/01/06/markets/thebuzz/index.htm
And the one that did it, the Forester Value fund, barely eked into the black with a 0.4% gain. Still, any increase is certainly impressive when you consider that the S&P 500 plunged 38.5% last year.
I spoke with Forester Value manager Tom Forester back in October to ask him about his investing strategy in such a brutal market and figured that now would be a good time to get his outlook for 2009.
Three months ago, Forester was fairly defensive. Many of his top holdings were in consumer staples companies, such as food giants Kraft and H.J. Heinz. He also said he was buying shares of Wal-Mart and McDonald's, two other companies that tend to do well in times when people are keeping a close watch on what they spend…...
Talkback: Will stocks finish 2009 higher or lower?
But Forester told me yesterday afternoon that while those are still sizable holdings, he's starting to cut back on some of these more "recession-proof" stocks because he's finding better values elsewhere. And what he's buying now may surprise you.
For one, Forester said he's been taking advantage of the massive sell-off in commodities in the past few months, especially oil.
Forester said that in the past few months, he's been purchasing shares of oil refiner Valero Energy (VLO, Fortune 500), exploration and production firm Anadarko Petroleum (APC, Fortune 500) and natural gas company EOG Resources (EOG).
"Nobody can really tell what's going to happen exactly with price of oil. But as oil got closer to $35, many of the stocks seemed more reasonable than they were when oil was closer to $150," he said. "Plus, for the longer term, companies are not finding as much oil as they used to, so prices could go back up. Commodities were oversold."
Black gold isn't the only commodity play that Forester likes. He also said he's recently been attracted to the luster of real gold: he bought shares of gold mining company Newmont Mining (NEM, Fortune 500) in November when the stock was in the mid-$20s. It's now trading at about $39 a share.
Outside of commodities, Forester is also dipping his toe in two areas that have been particularly hit hard during this recession: tech and retail.
Forester already owned a big position in Microsoft when we spoke in October. But, since then, he said he's also bought a chunk of software company Symantec.
Forester said he likes Symantec (SYMC, Fortune 500), which is mainly known for its line of Norton antivirus software, because he thinks consumers and corporations will be less inclined to cut back on security spending.
He said that protecting computers is more "mission critical" -- particularly for businesses -- and this will help the company continue to generate decent revenue and profit growth. Investors seem to agree. The stock was trading around $10 when he bought it in November and now hovers closer to $14.50.
As for retail, Forester said he bought shares of Kohl's (KSS, Fortune 500) late last year on the hope that consumer spending may start to pick up again in the latter half of 2009, and that this will benefit strong operators such as Kohl's. He also said he's looking closely at J.C. Penney (JCP, Fortune 500) but has yet to buy the stock.
"The next six months for me will be a wait-and-see sort of mode. I'm not hugely defensive like I was throughout most of 2008, but I haven't gotten really aggressive yet," he said. "I want to get more aggressive. But we haven't seen this type of recession in nearly two decades. It's going to be longer than the ones we've been used to."
As such, Forester said he's also still relatively cautious about financial stocks. He does own some property and casualty insurance companies, such as Travelers and Allstate. But he's largely steered clear of banks that got caught up in the credit mess that derailed the markets and economy last year.
When I spoke to Forester in October, he told me he was considering buying Morgan Stanley and life insurer Hartford Financial because they were so beaten down. But he avoided pulling the trigger on them, since it soon became increasingly clear that each company still needed to raise more capital. For this reason, Forester said he's only looking at financial stocks that he's convinced won't need to do deals to raise cash that will dilute the investments of current shareholders.
"In the next six months, we will see more financials needing to raise money. And those that don't are the ones I will jump into," he said.
All in all, Forester said he is confident that 2009 will be better than 2008, and he is eager to buy more stocks once it starts to become more clear that this long, painful recession is closer to the end than the beginning.
And even though Forester said he's pleased to have the distinction of being the only long-focused U.S. stock manager to have a winning year last year, he wouldn't mind some more company this year.
http://money.cnn.com/2009/01/06/markets/thebuzz/index.htm
The Lady Vanishes: Austria’s ‘Woman on Wall St.’ Now Out of Sight
With an aggressive style that stood out in the staid world of Austrian banking even more than her bouffant red wig, Sonja Kohn made few friends gathering billions for Bernard L. Madoff from wealthy investors in Russia and across Europe. Now, she has even fewer. Mrs. Kohn has dropped out of sight, leaving the firm she founded, Bank Medici, in the hands of Austrian regulators, who took it over last week.
Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.
“With Russian oligarchs as clients,” said a Viennese banker who knew Mrs. Kohn and her husband socially, “she might have reason to be afraid.” It was a view shared in interviews with Mrs. Kohn’s fellow bankers, former employees and other associates — from Vienna to London to Geneva to Monsey, N.Y.
Few of those who know her were willing to be quoted by name because they feared being linked to the scandal surrounding Mr. Madoff as well as the investigations into his alleged fraud. But several people with knowledge of her personal and professional dealings say she became concerned about retribution by Russian investors after Mr. Madoff’s arrest last month. (Russia’s richest men have been especially strapped as commodity prices and their stock market have collapsed.)
A spokeswoman for Bank Medici, Nicole Back-Knäpp of the public relations firm Ecker & Partner in Vienna, said Mrs. Kohn did not want to speak to the press.
“She is a victim and the Bank Medici as well,” Ms. Back-Knäpp said. She declined to comment on whether Mrs. Kohn was in hiding.
It is a stunning reversal for the 60-year-old Mrs. Kohn. The daughter of Jewish refugees from Eastern Europe who moved to Vienna after World War II, she came to New York in the 1980s and was one of the rare women to found and head a small brokerage firm. At that time, she started a decades-long friendship with Mr. Madoff. Once known here as “Austria’s woman on Wall Street,” she became one of Mr. Madoff’s international conduits for securing billions of dollars from the global rich.
http://www.nytimes.com/2009/01/07/business/07medici.html?_r=1&scp=3&sq=hedge+funds&st=nyt
Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.
“With Russian oligarchs as clients,” said a Viennese banker who knew Mrs. Kohn and her husband socially, “she might have reason to be afraid.” It was a view shared in interviews with Mrs. Kohn’s fellow bankers, former employees and other associates — from Vienna to London to Geneva to Monsey, N.Y.
Few of those who know her were willing to be quoted by name because they feared being linked to the scandal surrounding Mr. Madoff as well as the investigations into his alleged fraud. But several people with knowledge of her personal and professional dealings say she became concerned about retribution by Russian investors after Mr. Madoff’s arrest last month. (Russia’s richest men have been especially strapped as commodity prices and their stock market have collapsed.)
A spokeswoman for Bank Medici, Nicole Back-Knäpp of the public relations firm Ecker & Partner in Vienna, said Mrs. Kohn did not want to speak to the press.
“She is a victim and the Bank Medici as well,” Ms. Back-Knäpp said. She declined to comment on whether Mrs. Kohn was in hiding.
It is a stunning reversal for the 60-year-old Mrs. Kohn. The daughter of Jewish refugees from Eastern Europe who moved to Vienna after World War II, she came to New York in the 1980s and was one of the rare women to found and head a small brokerage firm. At that time, she started a decades-long friendship with Mr. Madoff. Once known here as “Austria’s woman on Wall Street,” she became one of Mr. Madoff’s international conduits for securing billions of dollars from the global rich.
http://www.nytimes.com/2009/01/07/business/07medici.html?_r=1&scp=3&sq=hedge+funds&st=nyt
Hedge slashes fees for early exits
At last!Someone with the balls to do what has to be done. Sushil Wadhwani has cut fees for early withdrawal from his hedge fund, one of last year’s best performers, even as many of his bigger rivals have been stopping investors getting their money back. Mr Wadhwani, a former member of the Bank of England’s rate-setting monetary policy committee and the founder of Wadhwani Asset Management, has reduced fees from 5 per cent to 1 per cent for redemptions made within a year of investment.
The cut is part of plans to raise new assets following a year during which his Keynes Quantitative Strategies fund and its leveraged sister fund produced strong returns, in spite of collapsing markets. They reflect increasing concerns among investors about restrictions on withdrawals, at a time when many have unexpectedly found they cannot get their money back when they need it.
Many of the biggest funds have restricted or suspended redemptions, with GLG, one of London’s biggest managers, suspending several funds and withholding a proportion of withdrawals from others – including its biggest fund, European Long-Short – until it can cash in their hard-to-sell assets. The fee was designed to deter fast-money investors who want to move in and out of the fund rapidly, even though the fund’s underlying assets are easy to sell.
http://www.ft.com/cms/s/0/e023a3ae-dc5c-11dd-b07e-000077b07658.html
The cut is part of plans to raise new assets following a year during which his Keynes Quantitative Strategies fund and its leveraged sister fund produced strong returns, in spite of collapsing markets. They reflect increasing concerns among investors about restrictions on withdrawals, at a time when many have unexpectedly found they cannot get their money back when they need it.
Many of the biggest funds have restricted or suspended redemptions, with GLG, one of London’s biggest managers, suspending several funds and withholding a proportion of withdrawals from others – including its biggest fund, European Long-Short – until it can cash in their hard-to-sell assets. The fee was designed to deter fast-money investors who want to move in and out of the fund rapidly, even though the fund’s underlying assets are easy to sell.
http://www.ft.com/cms/s/0/e023a3ae-dc5c-11dd-b07e-000077b07658.html
Credit Suisse Said to Have Urged Clients to Dump Madoff Funds
Credit Suisse Group AG, whose clients lost almost $1 billion in Bernard Madoff’s alleged swindle, urged customers more than eight years ago to withdraw cash from his firm because the bank couldn’t determine how he made money, said three people familiar with the matter.
Oswald Gruebel, who headed the private-banking unit of Switzerland’s No. 2 lender at the time, made the recommendation after meeting Madoff in New York in June 2000, the people said, speaking anonymously because the details were private. Credit Suisse customers proceeded to redeem about $250 million from Madoff-run funds, half the total held by the bank’s clients, the people said.
Credit Suisse, based in Zurich, risked alienating clients who were reaping annual returns from Madoff of about 11 percent a year, said two of the people at the meeting, which included executives from Fairfield Greenwich Group, a so-called feeder fund for Madoff. The bank couldn’t force clients to pull out their money.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZZvAeQPTd_Q&refer=worldwide
Oswald Gruebel, who headed the private-banking unit of Switzerland’s No. 2 lender at the time, made the recommendation after meeting Madoff in New York in June 2000, the people said, speaking anonymously because the details were private. Credit Suisse customers proceeded to redeem about $250 million from Madoff-run funds, half the total held by the bank’s clients, the people said.
Credit Suisse, based in Zurich, risked alienating clients who were reaping annual returns from Madoff of about 11 percent a year, said two of the people at the meeting, which included executives from Fairfield Greenwich Group, a so-called feeder fund for Madoff. The bank couldn’t force clients to pull out their money.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZZvAeQPTd_Q&refer=worldwide
How CalPERS Made a Bet and Blew It
Getting a handle on real-estate investments has to be one the first orders of business for Anne Stausboll, the new chief executive officer at California Public Employees' Retirement System. CalPERS has sustained steep declines in the value of its real estate holdings on top of even larger stock market losses. The reason is simple: CalPERS made aggressive investments in real estate at the worst possible time, when inflated property values had peaked and were already beginning to decline.
One CalPERS real estate misstep stands out in particular. In February 2007, CalPERS invested $922 million in a deal with LandSource Communities Development LLC that involved thousands of homes and lots in seven states including Florida, Arizona and California. Sixteen months later, LandSource filed for Chapter 11 bankruptcy. Depending on what assets the partnership sells to pay off creditors, CalPERS could lose its entire investment, nearly $1 billion.
Pension fund officials blame an unprecedented slide in housing values that caught them, other big investors and ordinary homebuyers by surprise. But experts told The Bee that CalPERS' LandSource investment was made at a time when the housing market "was clearly shifting." CalPERS officials say they saw the signs too. So why make such a high-risk investment?
Housing losses come on top of even more precipitous stock market declines. The overall value of the pension fund has dropped $51.1 billion since July 1, from $239 billion down to $187.9 billion as of last week.
http://www.sacbee.com/opinion/story/1518469.html
One CalPERS real estate misstep stands out in particular. In February 2007, CalPERS invested $922 million in a deal with LandSource Communities Development LLC that involved thousands of homes and lots in seven states including Florida, Arizona and California. Sixteen months later, LandSource filed for Chapter 11 bankruptcy. Depending on what assets the partnership sells to pay off creditors, CalPERS could lose its entire investment, nearly $1 billion.
Pension fund officials blame an unprecedented slide in housing values that caught them, other big investors and ordinary homebuyers by surprise. But experts told The Bee that CalPERS' LandSource investment was made at a time when the housing market "was clearly shifting." CalPERS officials say they saw the signs too. So why make such a high-risk investment?
Housing losses come on top of even more precipitous stock market declines. The overall value of the pension fund has dropped $51.1 billion since July 1, from $239 billion down to $187.9 billion as of last week.
http://www.sacbee.com/opinion/story/1518469.html
Madoff Victims Pawning Jewels To Eat, Overwhelming Jewelers
...Business was brisk at the Madison Avenue headquarters of CIRCA, a jewelry-buying firm, where Madoff-related jewels had been incoming all month, like expensive shrapnel. “When Madoff hit, then we started to get the calls,” the firm’s C.E.O., Chris Del Gatto, said the other day in his office, which is decorated with polo paraphernalia. An older woman in Beverly Hills had mailed in a nine-carat diamond to sell, so that she could pay her expenses; the company had sent armored cars to retrieve two batches of family jewels from Chicago and Arizona. “If it’s high enough value, one of the services we provide is we’ll send Brinks,” Del Gatto said.
He got on his speakerphone and called Tracy Sherman, the company’s Palm Beach director, who talked about the daily rounds she’d been making to the homes of Madoff victims. “Just visualize a dining-room table with everything laid out in rows,” Sherman said. “They’ve taken the jewelry out of the safety-deposit box and laid it out—all the earrings, and then come the bracelets and the suites of things that go together.” Often, the house is for sale, too. “Everybody down here has David Webb jewelry,” Sherman said, referring to a company known for its gem-encrusted animals...
Del Gatto gestured toward the haul and said, “This will be sold to collectors all around the world,” and it was possible to imagine the frog family, together with the rest of the jewels dislodged by Madoff, going on a great migration—from Palm Beach to Russia, or Dubai, or wherever the outlook is still rosy, if such a place exists.
http://www.newyorker.com/talk/2009/01/12/090112ta_talk_widdicombe
He got on his speakerphone and called Tracy Sherman, the company’s Palm Beach director, who talked about the daily rounds she’d been making to the homes of Madoff victims. “Just visualize a dining-room table with everything laid out in rows,” Sherman said. “They’ve taken the jewelry out of the safety-deposit box and laid it out—all the earrings, and then come the bracelets and the suites of things that go together.” Often, the house is for sale, too. “Everybody down here has David Webb jewelry,” Sherman said, referring to a company known for its gem-encrusted animals...
Del Gatto gestured toward the haul and said, “This will be sold to collectors all around the world,” and it was possible to imagine the frog family, together with the rest of the jewels dislodged by Madoff, going on a great migration—from Palm Beach to Russia, or Dubai, or wherever the outlook is still rosy, if such a place exists.
http://www.newyorker.com/talk/2009/01/12/090112ta_talk_widdicombe
Tuesday, January 6, 2009
From Our “Can We Talk?” Dept.: The Ponzi Scheme in Every Hedge Fund
Bernie Madoff's $50 billion Ponzi scheme continues to rock the financial world. But most hedge funds actually engage in similar — albeit legal — practices in the short run. In the past, these practices helped inflate their gains as well as hedge-fund managers' salaries and bonuses, but recently they helped bring about the failure of many major hedge funds.
At the heart of the difference is the distinction between realized and unrealized gains. Gains are realized when assets are liquidated to cash. For instance, if you buy a stock for $100 and it is currently trading at $200, you have made $100 in unrealized gains. If you sell it at $200, you have made $100 in realized gains. Most hedge funds do not regularly liquidate their entire portfolio, so they report unrealized gains to their investors and to the public.
Now comes the murkier part: Many assets — particularly those that unregulated hedge funds can trade — are not as liquid as stocks, so they do not always have a definite price on the market. Since a fund reports unrealized gains, it could easily get away with inflating profits. More specifically, the fund could use the most optimistic models to price its illiquid assets, which include mortgage-backed securities and other swaps. After all, economists disagree about how to value these assets, so the fund is not necessarily being dishonest in its assessment.
Madoff never even came close to realizing the gains he reported and paid out to some investors. Yet even funds with fairly accurate estimates of unrealized gains are guilty of engaging in similar Ponzi practices in the short term. Here's why:
Suppose some investors decide to withdraw their money from a hedge fund. The fund must liquidate the appropriate amount of its assets to pay these investors. Say the fund holds large positions in illiquid assets. The fund cannot immediately sell these assets, except at a fatal loss, so it would sell its more liquid assets. Given that the fund is more likely to inflate its estimation of the illiquid assets, it would seem that investors who withdraw early get the better returns over that time period. Sounds a bit like a Ponzi scheme, right?
Even in the most vanilla of trades, liquidation can impact the market price. With lightly traded securities, this can be magnified. For example, a fund might corner some asset by buying and buying and buying and then reporting a huge unrealized gain. But the moment the fund tries to sell and realize the gain (perhaps to pay off its last few investors), demand disappears, and the asset crashes. Again, investors withdrawing early got better returns over that time period than those who waited until later. (See the top 10 financial collapses of 2008.)
Every year hedge funds do have to liquidate part of their profits in order to pay their managers, traders and other support staff. Fund managers typically keep 20% of (unrealized) trading profits. But first they must realize that 20% by selling the liquid assets. If a fund is overestimating the value of the illiquid assets, then its manager's profit is grossly overestimated. In most cases, the profit is at least slightly overestimated because of slippage in the liquid assets. In other words, if a fund liquidated all profits, the supposed 20% taken out first would actually be larger than 20% of the total realized profit.
If hedge funds had to regularly liquidate assets, we would not see the spectacular returns reported in the past. One factor of the supposed success of hedge funds is their ability to report unrealized gains and to be flexible in liquidation, since investors who believe they are getting high returns are unlikely to withdraw their money. That was how Madoff was able to maintain his charade for so long.
http://www.time.com/time/business/article/0,8599,1869196,00.html?xid=rss-mostpopular
At the heart of the difference is the distinction between realized and unrealized gains. Gains are realized when assets are liquidated to cash. For instance, if you buy a stock for $100 and it is currently trading at $200, you have made $100 in unrealized gains. If you sell it at $200, you have made $100 in realized gains. Most hedge funds do not regularly liquidate their entire portfolio, so they report unrealized gains to their investors and to the public.
Now comes the murkier part: Many assets — particularly those that unregulated hedge funds can trade — are not as liquid as stocks, so they do not always have a definite price on the market. Since a fund reports unrealized gains, it could easily get away with inflating profits. More specifically, the fund could use the most optimistic models to price its illiquid assets, which include mortgage-backed securities and other swaps. After all, economists disagree about how to value these assets, so the fund is not necessarily being dishonest in its assessment.
Madoff never even came close to realizing the gains he reported and paid out to some investors. Yet even funds with fairly accurate estimates of unrealized gains are guilty of engaging in similar Ponzi practices in the short term. Here's why:
Suppose some investors decide to withdraw their money from a hedge fund. The fund must liquidate the appropriate amount of its assets to pay these investors. Say the fund holds large positions in illiquid assets. The fund cannot immediately sell these assets, except at a fatal loss, so it would sell its more liquid assets. Given that the fund is more likely to inflate its estimation of the illiquid assets, it would seem that investors who withdraw early get the better returns over that time period. Sounds a bit like a Ponzi scheme, right?
Even in the most vanilla of trades, liquidation can impact the market price. With lightly traded securities, this can be magnified. For example, a fund might corner some asset by buying and buying and buying and then reporting a huge unrealized gain. But the moment the fund tries to sell and realize the gain (perhaps to pay off its last few investors), demand disappears, and the asset crashes. Again, investors withdrawing early got better returns over that time period than those who waited until later. (See the top 10 financial collapses of 2008.)
Every year hedge funds do have to liquidate part of their profits in order to pay their managers, traders and other support staff. Fund managers typically keep 20% of (unrealized) trading profits. But first they must realize that 20% by selling the liquid assets. If a fund is overestimating the value of the illiquid assets, then its manager's profit is grossly overestimated. In most cases, the profit is at least slightly overestimated because of slippage in the liquid assets. In other words, if a fund liquidated all profits, the supposed 20% taken out first would actually be larger than 20% of the total realized profit.
If hedge funds had to regularly liquidate assets, we would not see the spectacular returns reported in the past. One factor of the supposed success of hedge funds is their ability to report unrealized gains and to be flexible in liquidation, since investors who believe they are getting high returns are unlikely to withdraw their money. That was how Madoff was able to maintain his charade for so long.
http://www.time.com/time/business/article/0,8599,1869196,00.html?xid=rss-mostpopular
Are Jamie Dimon’s diamonds turning to rhinestones?
Let's face facts: the girl is in the hot seat. You wouldn’t know from the endless glowing press accounts she’s received for steering JPMorgan Chase fairly clear of the subprime debt crisis that has already taken out two firms—Bear Stearns and Lehman Brothers—and forced the federal government to bail out the once mighty Citigroup with billions in aid and other measures.
But Dimon is feeling that heat, nonetheless, from analysts, who believe his firm will post a loss this quarter, the first since he became CEO in 2006; from fellow CEOs, who believe he took advantage of competitors during the height of the financial crisis in mid-September; and now even from some of his own board members, who believe their straight-talking CEO spoke a little too straight in a recent CNBC interview when he described in graphic terms the problems facing JPMorgan and the rest of the financial business. Following Dimon’s bitchy remarks, which he then repeated in a speech, the Dow Jones Industrial Average fell nearly 200 points, and shares of JPMorgan were among the biggest losers, tanking nearly 10 percent.
At least for now, Dimon has been certified a winner—and for good reason. He’s been the best CEO on Wall Street at a time when the street needed a great CEO. As the entire financial services business began to crumble, JPMorgan was a source of stability….
http://www.thedailybeast.com/blogs-and-stories/2009-01-05/is-jamie-dimon-the-next-to-fall/
But Dimon is feeling that heat, nonetheless, from analysts, who believe his firm will post a loss this quarter, the first since he became CEO in 2006; from fellow CEOs, who believe he took advantage of competitors during the height of the financial crisis in mid-September; and now even from some of his own board members, who believe their straight-talking CEO spoke a little too straight in a recent CNBC interview when he described in graphic terms the problems facing JPMorgan and the rest of the financial business. Following Dimon’s bitchy remarks, which he then repeated in a speech, the Dow Jones Industrial Average fell nearly 200 points, and shares of JPMorgan were among the biggest losers, tanking nearly 10 percent.
At least for now, Dimon has been certified a winner—and for good reason. He’s been the best CEO on Wall Street at a time when the street needed a great CEO. As the entire financial services business began to crumble, JPMorgan was a source of stability….
http://www.thedailybeast.com/blogs-and-stories/2009-01-05/is-jamie-dimon-the-next-to-fall/
Madoff Firm Has $830 Million Left For Victims
Well at least it's something. According to trustee Irving Picard, Madoff's firm still has $830 million in liquid assets that can be distributed to the thousands of victims. This, of course, is just part of what victims hope they can recover. In addition, victims and their lawyers will seek all of Madoff's personal wealth, money that was pulled out by lucky Madoff investors over the past few years, as well as assets of Madoff's enablesr (Merking, Fairfield, Tremont et. al.)
How it will be distributed, plus whatever amount is paid out by the SIPC, remains to be seen, but we're wondering: How will they calculate an investor's losses? Consider that Yeshiva University recently slashed its loss estimates, simply by deciding that its years of gains were fictitious, and thus couldn't be lost. Sure, but when you're talking about claiming a share of the pennies left over, you want to have the biggest lose you can claim.
http://clusterstock.alleyinsider.com/2009/1/madoff-firm-has-830-million-left-for-victims
How it will be distributed, plus whatever amount is paid out by the SIPC, remains to be seen, but we're wondering: How will they calculate an investor's losses? Consider that Yeshiva University recently slashed its loss estimates, simply by deciding that its years of gains were fictitious, and thus couldn't be lost. Sure, but when you're talking about claiming a share of the pennies left over, you want to have the biggest lose you can claim.
http://clusterstock.alleyinsider.com/2009/1/madoff-firm-has-830-million-left-for-victims
The King of Brokers Bails
Bob McCann, who led Merrill Lynch's 16,000 strong army of brokers, is leaving the firm. Just a few days after Merrill's ticker symbol, MER, vanished from the New York Stock Exchange as the company was acquired by Bank of America, the news comes as a surprise to many.
When Stan O'Neal was forced out of the c-suite late last year, Bob McCann was considered the top-running candidate to become the next chief executive by the rank-and-file of the company. Outsiders, including some board members, considered him to be a long-shot. His main source of support was from Merrill employees.
He was shocked when the board selected John Thain. For the next year, he was deeply engaged in the struggle for power that cleaved Merrill Lynch. Now that Merrill has passed into the hands of Bank of America, it seems the struggle is over and McCann is out.
http://clusterstock.alleyinsider.com/2009/1/bob-mccann-leaving-merrill-wsj-reports
When Stan O'Neal was forced out of the c-suite late last year, Bob McCann was considered the top-running candidate to become the next chief executive by the rank-and-file of the company. Outsiders, including some board members, considered him to be a long-shot. His main source of support was from Merrill employees.
He was shocked when the board selected John Thain. For the next year, he was deeply engaged in the struggle for power that cleaved Merrill Lynch. Now that Merrill has passed into the hands of Bank of America, it seems the struggle is over and McCann is out.
http://clusterstock.alleyinsider.com/2009/1/bob-mccann-leaving-merrill-wsj-reports
Fortress shares fall could result in delisting (The Darkness Comes Before the Dawn?)
Shares in Fortress Investment Group, the first private equity and hedge fund firm to list nearly two years ago, rose Monday amid speculation that the group may opt to go private once more. Shares in Fortress, which fell below $1 on Friday, closed at $1.90 on heavy volume Monday.
With Fortress’s market capitalisation about $770m, it would not be prohibitively expensive for Fortress principals to take their company private once more.
But, with the banks reluctant to lend, Wes Edens and other founders of Fortress would likely have to use their own money to buy out their public shareholders.
Whether they chose to do so may provide clues about how savvy investors such as Mr Edens and his partner Pete Briger regard their own business prospects. Calls to Fortress were not returned.
If Fortress does decide to delist, speculation will intensify over whether Blackstone, whose shares have also plummeted, may chose to follow suit.
http://www.ft.com/cms/s/0/4fae8ea6-db85-11dd-be53-000077b07658.html
With Fortress’s market capitalisation about $770m, it would not be prohibitively expensive for Fortress principals to take their company private once more.
But, with the banks reluctant to lend, Wes Edens and other founders of Fortress would likely have to use their own money to buy out their public shareholders.
Whether they chose to do so may provide clues about how savvy investors such as Mr Edens and his partner Pete Briger regard their own business prospects. Calls to Fortress were not returned.
If Fortress does decide to delist, speculation will intensify over whether Blackstone, whose shares have also plummeted, may chose to follow suit.
http://www.ft.com/cms/s/0/4fae8ea6-db85-11dd-be53-000077b07658.html
2009 Could Be Better Than You Think
No, 2008 wasn't just a bad year. It was an God awful year. A Johnstown Flood kind of year. But why focus on the negative? Here are five good reasons why 2009 could, if you make the most of it, be good for your financial health.
1 This will be a good year to invest in stocks.
No one can tell you exactly when or where the market will bottom. But most business-cycle experts agree that the bottom will be found sometime this year, and that it probably won't be too far below where the market is today. Even in the Great Depression, the market bottomed out in 1932, with the Dow Jones Industrial Average at 41, down from a peak of 381 in 1929. By 1937, it had climbed back to a respectable 194. That didn't make investors whole. But for those who stayed in, it certainly soothed the wounds.
2 It will be a good year to invest in real estate.
This one's a bit trickier, since real-estate prices are "sticky" on the downside. Homeowners don't like to admit that the value of their pride and joy has fallen by 30%. So they'll put their house on the market at an inflated price and hope some fool will bite.
3 Americans will learn to live within their means.
Around our house, the crisis is already having a salutary effect. Our teenagers suddenly seem to understand that unlimited dinners out with friends aren't a birthright, and that blue jeans don't have to carry triple-digit price tags.
4 President Obama will have a historic opportunity to reshape public policy.
Speaking at the Wall Street Journal's CEO conference in November, Mr. Obama's chief-of-staff-designate, Rahm Emanuel, said the words that have become his team's rallying cry for 2009: "You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before."
5 Your (federal) taxes won't rise.
Never mind those campaign calls for higher taxes on the wealthiest Americans. Truth is, no politician is going to push for general tax increases in the midst of a severe recession.
Well, that's the sweet secret of the current crisis. While the American people are learning to live within their means, the new American government has discovered an unlimited (for now) line of credit. The United States may have led the world into this crisis, but the world now seems more than willing to lend us unlimited amounts of money to lead the way out. This, too, is unsustainable. A reckoning will come. But that's a problem for 2010 and beyond. In the meantime, enjoy the new year!
http://online.wsj.com/article/SB123103188733751647.html
1 This will be a good year to invest in stocks.
No one can tell you exactly when or where the market will bottom. But most business-cycle experts agree that the bottom will be found sometime this year, and that it probably won't be too far below where the market is today. Even in the Great Depression, the market bottomed out in 1932, with the Dow Jones Industrial Average at 41, down from a peak of 381 in 1929. By 1937, it had climbed back to a respectable 194. That didn't make investors whole. But for those who stayed in, it certainly soothed the wounds.
2 It will be a good year to invest in real estate.
This one's a bit trickier, since real-estate prices are "sticky" on the downside. Homeowners don't like to admit that the value of their pride and joy has fallen by 30%. So they'll put their house on the market at an inflated price and hope some fool will bite.
3 Americans will learn to live within their means.
Around our house, the crisis is already having a salutary effect. Our teenagers suddenly seem to understand that unlimited dinners out with friends aren't a birthright, and that blue jeans don't have to carry triple-digit price tags.
4 President Obama will have a historic opportunity to reshape public policy.
Speaking at the Wall Street Journal's CEO conference in November, Mr. Obama's chief-of-staff-designate, Rahm Emanuel, said the words that have become his team's rallying cry for 2009: "You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before."
5 Your (federal) taxes won't rise.
Never mind those campaign calls for higher taxes on the wealthiest Americans. Truth is, no politician is going to push for general tax increases in the midst of a severe recession.
Well, that's the sweet secret of the current crisis. While the American people are learning to live within their means, the new American government has discovered an unlimited (for now) line of credit. The United States may have led the world into this crisis, but the world now seems more than willing to lend us unlimited amounts of money to lead the way out. This, too, is unsustainable. A reckoning will come. But that's a problem for 2010 and beyond. In the meantime, enjoy the new year!
http://online.wsj.com/article/SB123103188733751647.html
Monday, January 5, 2009
Renaissance Waives Fees on Fund That Lost 12%
At last! Five years ago a veep from a major consultantcy reassured me that this would happen. I admit I was sceptical, but finally a multibillion-dollar hedge fund run by Renaissance Technologies LLC's James Simons has waived all its management fees for 2009, a rare move suggesting fund managers' pay will come under greater pressure in the year ahead.
Mr. Simons recently told investors in his year-old futures fund, Renaissance Institutional Futures, that he was waiving the 1% fixed management fee this year following poor performance in 2008.
That 12-month fee break equates to about a $30 million price cut from what investors in the $3 billion fund would have paid. The discount applies even if the fund delivers good results in 2009.
In addition, the fund will have to make back losses before investors must pay performance fees or share the fund's profits with its managers. A spokesman for Mr. Simons declined to comment.
"Less than stellar" is how Mr. Simons termed the futures fund's 12% decline in 2008, according to a Dec. 31 letter to clients. The performance still compared favorably with the 38% loss for the Standard & Poor's 500-stock index in 2008, including dividends, and to the 20%-plus average decline of hedge funds globally, according to Hedge Fund Research.
http://online.wsj.com/article/SB123111803544652709.html?mod=googlenews_wsj
Mr. Simons recently told investors in his year-old futures fund, Renaissance Institutional Futures, that he was waiving the 1% fixed management fee this year following poor performance in 2008.
That 12-month fee break equates to about a $30 million price cut from what investors in the $3 billion fund would have paid. The discount applies even if the fund delivers good results in 2009.
In addition, the fund will have to make back losses before investors must pay performance fees or share the fund's profits with its managers. A spokesman for Mr. Simons declined to comment.
"Less than stellar" is how Mr. Simons termed the futures fund's 12% decline in 2008, according to a Dec. 31 letter to clients. The performance still compared favorably with the 38% loss for the Standard & Poor's 500-stock index in 2008, including dividends, and to the 20%-plus average decline of hedge funds globally, according to Hedge Fund Research.
http://online.wsj.com/article/SB123111803544652709.html?mod=googlenews_wsj
Yale’s Swenson Sees Huge Debt Buying Opportunity
Yale University, whose endowment dropped $5.9 billion in six months because of the recession, is pursuing a recovery by acquiring distressed debt.
“There are some really extraordinary opportunities in the credit world,” said David Swensen, the school’s investment chief, in a phone interview from his office at the New Haven, Connecticut, university. “Everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.”
Swensen, 54, increased Yale’s endowment to $22.9 billion on June 30, from $1 billion in 1985 when he assumed the job, making it the second-wealthiest university in the U.S. The school estimated on Dec. 16 that the fund had fallen 25 percent, to $17 billion, because of the global financial crisis. Swensen, who has updated his 2000 book on investing for re-release Jan. 6, said periodic losses are inevitable in a portfolio tilted toward stocks and built to grow over many years.
“There isn’t an investment strategy that can produce the kind of long-term results we’ve generated at Yale that isn’t going to post the occasional negative return,” Swensen said in the Dec. 30 interview. “I don’t think people should disregard the book because of the market trauma of the last few months. We’re not even done with the current fiscal year. Judging a long-term investment strategy based on the results of a five- to six-month period is foolish beyond words.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ab08HlxLZ5FY
“There are some really extraordinary opportunities in the credit world,” said David Swensen, the school’s investment chief, in a phone interview from his office at the New Haven, Connecticut, university. “Everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.”
Swensen, 54, increased Yale’s endowment to $22.9 billion on June 30, from $1 billion in 1985 when he assumed the job, making it the second-wealthiest university in the U.S. The school estimated on Dec. 16 that the fund had fallen 25 percent, to $17 billion, because of the global financial crisis. Swensen, who has updated his 2000 book on investing for re-release Jan. 6, said periodic losses are inevitable in a portfolio tilted toward stocks and built to grow over many years.
“There isn’t an investment strategy that can produce the kind of long-term results we’ve generated at Yale that isn’t going to post the occasional negative return,” Swensen said in the Dec. 30 interview. “I don’t think people should disregard the book because of the market trauma of the last few months. We’re not even done with the current fiscal year. Judging a long-term investment strategy based on the results of a five- to six-month period is foolish beyond words.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ab08HlxLZ5FY
Buffett: Nowhere to run, Nowhere to hide
Oh Baby! Buffett’s Berkshire Hathaway Inc. slumped 32 percent last year, the worst performance in more than three decades, as the U.S. recession forced down the value of the firm’s equity holdings and derivative bets.
Most of the stock decline happened in the last three months as Berkshire posted a fourth straight profit drop amid sagging insurance results. The company still beat the 38 percent tumble of the Standard & Poor’s 500 Index, the 14th year in 20 that Buffett outperformed the benchmark. Just six of 1,591 U.S. stock mutual funds with at least $250 million in assets made money for investors last year, according to data compiled by Bloomberg.
“Buffett, 78, poured money into stocks as prices fell and increased Berkshire’s pace of deals as the contraction in credit markets hobbled buyout firms. Buffett spent about $3.9 billion on equities in the third quarter, making Berkshire the biggest shareholder in ConocoPhillips, the second-largest U.S. refiner. Berkshire announced 12 acquisitions in 2008, compared with eight in 2007, and also agreed to buy $8 billion in preferred shares from Goldman Sachs Group Inc. and General Electric Co.
“Buffett has the opportunity to do what he does best, which is acquire new companies at prices that have him licking his lips,” said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which holds Berkshire shares. “I don’t think Mr. Buffett is bummed out at all.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aVs.jRV4UDWA&refer=exclusive
Most of the stock decline happened in the last three months as Berkshire posted a fourth straight profit drop amid sagging insurance results. The company still beat the 38 percent tumble of the Standard & Poor’s 500 Index, the 14th year in 20 that Buffett outperformed the benchmark. Just six of 1,591 U.S. stock mutual funds with at least $250 million in assets made money for investors last year, according to data compiled by Bloomberg.
“Buffett, 78, poured money into stocks as prices fell and increased Berkshire’s pace of deals as the contraction in credit markets hobbled buyout firms. Buffett spent about $3.9 billion on equities in the third quarter, making Berkshire the biggest shareholder in ConocoPhillips, the second-largest U.S. refiner. Berkshire announced 12 acquisitions in 2008, compared with eight in 2007, and also agreed to buy $8 billion in preferred shares from Goldman Sachs Group Inc. and General Electric Co.
“Buffett has the opportunity to do what he does best, which is acquire new companies at prices that have him licking his lips,” said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which holds Berkshire shares. “I don’t think Mr. Buffett is bummed out at all.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aVs.jRV4UDWA&refer=exclusive
Jesus H. Christ! When Will This Recession Finally End?
There's really just one question that matters this new year. When will the recession end? OK, so maybe I lied. There's another question that matters even more. Will the recession ever end?
I have a lot of institutional clients who take very seriously the idea that this recession could be permanent. In their minds, it could turn out to be more like a depression. Even when we pull out of the worst of it, we'll be stuck with year after year of slow growth.
Pretty much no one thinks this recession could possibly already be over. And only a few brave souls dare to consider that it might only take another quarter or so to hit bottom. So it's just a matter of, how bad is it really?
Call me crazy, but I actually think we could all end up being pretty pleasantly surprised. I admit I was one of the last people on earth to agree we were in recession in the first place. So let me make up for that mistake: I'll be the first person to say it's over. I don't mean to get carried away on wings of optimism here. But there really are some hopeful signs. Some of the same symptoms that, earlier this year, gave us an early warning that recession was lurking are now pointing in a more hopeful direction.
Let's remember what caused this recession in the first place. It started out as just a slowdown. But then over the summer, one by one, giant financial firms blew up -- not without a little help from some particularly incompetent government interventions. By the end of September, with Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, Washington Mutual and Wachovia all in the graveyard, or at least on the embalming table, the global economy suddenly hit the brakes.
It's been three months now since all that happened. In case you haven't noticed, giant financial firms have stopped blowing up. Or at least when they threaten to now, the feds step in and kiss their boo-boos and makes everything good again. In late November, Citigroup was rescued by the Treasury Department and the Federal Reserve. In December, it was the Big Three auto makers, and critically, General Motors' GMAC financing arm.
So suddenly markets have stopped going down. In fact they've started going up. Oh sure, after a catastrophe like we had during most of 2008, the rally in stocks off the November bottom doesn't mean all is forgiven. But emotions aside, the reality is that from the November nadir stocks, on average, are up something like 20% now. By most reckonings that's a whole bull market. But I can understand why nobody is particularly thrilled about it…..
http://www.smartmoney.com/investing/economy/when-will-this-recession-finally-end/?cid=1108
I have a lot of institutional clients who take very seriously the idea that this recession could be permanent. In their minds, it could turn out to be more like a depression. Even when we pull out of the worst of it, we'll be stuck with year after year of slow growth.
Pretty much no one thinks this recession could possibly already be over. And only a few brave souls dare to consider that it might only take another quarter or so to hit bottom. So it's just a matter of, how bad is it really?
Call me crazy, but I actually think we could all end up being pretty pleasantly surprised. I admit I was one of the last people on earth to agree we were in recession in the first place. So let me make up for that mistake: I'll be the first person to say it's over. I don't mean to get carried away on wings of optimism here. But there really are some hopeful signs. Some of the same symptoms that, earlier this year, gave us an early warning that recession was lurking are now pointing in a more hopeful direction.
Let's remember what caused this recession in the first place. It started out as just a slowdown. But then over the summer, one by one, giant financial firms blew up -- not without a little help from some particularly incompetent government interventions. By the end of September, with Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, Washington Mutual and Wachovia all in the graveyard, or at least on the embalming table, the global economy suddenly hit the brakes.
It's been three months now since all that happened. In case you haven't noticed, giant financial firms have stopped blowing up. Or at least when they threaten to now, the feds step in and kiss their boo-boos and makes everything good again. In late November, Citigroup was rescued by the Treasury Department and the Federal Reserve. In December, it was the Big Three auto makers, and critically, General Motors' GMAC financing arm.
So suddenly markets have stopped going down. In fact they've started going up. Oh sure, after a catastrophe like we had during most of 2008, the rally in stocks off the November bottom doesn't mean all is forgiven. But emotions aside, the reality is that from the November nadir stocks, on average, are up something like 20% now. By most reckonings that's a whole bull market. But I can understand why nobody is particularly thrilled about it…..
http://www.smartmoney.com/investing/economy/when-will-this-recession-finally-end/?cid=1108
Why We Keep Falling for Financial Scams
“There are few areas where skepticism is more important than how one invests one's life savings. Yet intelligent and educated people, some of them naïve about finance and others quite knowledgeable, have been ruined by schemes that turned out to be highly dubious and quite often fraudulent. The most dramatic example of this in American history is the recent announcement that Bernard Madoff, a highly regarded money manager and a former chairman of Nasdaq, has for years been running a very sophisticated Ponzi scheme, which by his own admission has defrauded wealthy investors, charities and other funds of at least $50 billion.
“….The basic mechanism explaining the success of Ponzi schemes is the tendency of humans to model their actions -- especially when dealing with matters they don't fully understand -- on the behavior of other humans. This mechanism has been termed "irrational exuberance," a phrase often attributed to former Federal Reserve chairman Alan Greenspan (no relation), but actually coined by another economist, Robert J. Shiller, who later wrote a book with that title. Mr. Shiller employs a social psychological explanation that he terms the "feedback loop theory of investor bubbles." Simply stated, the fact that so many people seem to be making big profits on the investment, and telling others about their good fortune, makes the investment seem safe and too good to pass up.”
Financial scams are just one of the many forms of human gullibility -- along with war (the Trojan Horse), politics (WMDs in Iraq), relationships (sexual seduction), pathological science (cold fusion) and medical fads. Although gullibility has long been of interest in works of fiction (Othello, Pinocchio), religious documents (Adam and Eve, Samson) and folk tales ("The Emperor's New Clothes," "Little Red Riding Hood"), it has been almost completely ignored by social scientists. A few books have focused on narrow aspects of gullibility, including Charles Mackey's classic 19th-century book, "Extraordinary Popular Delusion and the Madness of Crowds" -- most notably on investment follies such as Tulipmania, in which rich Dutch people traded their houses for one or two tulip bulbs. In my new book "Annals of Gullibility," based on my academic work in psychology, I propose a multidimensional theory that would explain why so many people behave in a manner that exposes them to severe and predictable risks. This includes myself: After I wrote my book, I lost a good chunk of my retirement savings to Mr. Madoff, so I know of what I write on the most personal level.
A Ponzi scheme is a fraud in which invested money is pocketed by the schemer and investors who wish to redeem their money are actually paid out of proceeds from new investors. As long as new investments are expanding at a healthy rate, the schemer is able to keep the fraud going. Once investments begin to contract, as through a run on the company, the house of cards quickly collapses. That is what apparently happened with the Madoff scam, when too many investors -- needing cash because of the general U.S. financial meltdown in late 2008 -- tried to redeem their funds. It seems Mr. Madoff could not meet these demands and the scam was exposed.
The scheme gets its name from Charles Ponzi, an Italian immigrant to Boston, who around 1920 came up with the idea of promising huge returns (50% in 45 days) supposedly based on an arbitrage plan (buying in one market and selling in another) involving international postal reply coupons. The profits allegedly came from differences in exchange rates between the selling and the receiving country, where they could be cashed in. A craze ensued, and Ponzi pocketed many millions of dollars, mostly from poor and unsophisticated Italian immigrants in New England and New Jersey. The scheme collapsed when newspaper articles began to raise questions about it (pointing out, for example, that there were not nearly enough such coupons in circulation) and a run occurred.
In the 1980s, some investors put their money in Lloyd's of London (headquarters shown above) to become a prestigious "name," then faced big losses. Lloyd's later reached a settlement with many investors that reduced the amount they had to pay.
Another large-scale scandal that some have called a Ponzi scheme involved famed insurance market Lloyd's of London. In the 1980s, the company rapidly brought new investors, many from the U.S., into its formerly exclusive market. The attraction to these new investors, aside from the lure of good returns, was the chance to become a "name," a prestigious status which had been mainly limited to British aristocrats. These investors were often lured into the most risky and least productive syndicates, exposing them to huge liability and, in many cases, ruin.
http://online.wsj.com/article/SB123093987596650197.html
“….The basic mechanism explaining the success of Ponzi schemes is the tendency of humans to model their actions -- especially when dealing with matters they don't fully understand -- on the behavior of other humans. This mechanism has been termed "irrational exuberance," a phrase often attributed to former Federal Reserve chairman Alan Greenspan (no relation), but actually coined by another economist, Robert J. Shiller, who later wrote a book with that title. Mr. Shiller employs a social psychological explanation that he terms the "feedback loop theory of investor bubbles." Simply stated, the fact that so many people seem to be making big profits on the investment, and telling others about their good fortune, makes the investment seem safe and too good to pass up.”
Financial scams are just one of the many forms of human gullibility -- along with war (the Trojan Horse), politics (WMDs in Iraq), relationships (sexual seduction), pathological science (cold fusion) and medical fads. Although gullibility has long been of interest in works of fiction (Othello, Pinocchio), religious documents (Adam and Eve, Samson) and folk tales ("The Emperor's New Clothes," "Little Red Riding Hood"), it has been almost completely ignored by social scientists. A few books have focused on narrow aspects of gullibility, including Charles Mackey's classic 19th-century book, "Extraordinary Popular Delusion and the Madness of Crowds" -- most notably on investment follies such as Tulipmania, in which rich Dutch people traded their houses for one or two tulip bulbs. In my new book "Annals of Gullibility," based on my academic work in psychology, I propose a multidimensional theory that would explain why so many people behave in a manner that exposes them to severe and predictable risks. This includes myself: After I wrote my book, I lost a good chunk of my retirement savings to Mr. Madoff, so I know of what I write on the most personal level.
A Ponzi scheme is a fraud in which invested money is pocketed by the schemer and investors who wish to redeem their money are actually paid out of proceeds from new investors. As long as new investments are expanding at a healthy rate, the schemer is able to keep the fraud going. Once investments begin to contract, as through a run on the company, the house of cards quickly collapses. That is what apparently happened with the Madoff scam, when too many investors -- needing cash because of the general U.S. financial meltdown in late 2008 -- tried to redeem their funds. It seems Mr. Madoff could not meet these demands and the scam was exposed.
The scheme gets its name from Charles Ponzi, an Italian immigrant to Boston, who around 1920 came up with the idea of promising huge returns (50% in 45 days) supposedly based on an arbitrage plan (buying in one market and selling in another) involving international postal reply coupons. The profits allegedly came from differences in exchange rates between the selling and the receiving country, where they could be cashed in. A craze ensued, and Ponzi pocketed many millions of dollars, mostly from poor and unsophisticated Italian immigrants in New England and New Jersey. The scheme collapsed when newspaper articles began to raise questions about it (pointing out, for example, that there were not nearly enough such coupons in circulation) and a run occurred.
In the 1980s, some investors put their money in Lloyd's of London (headquarters shown above) to become a prestigious "name," then faced big losses. Lloyd's later reached a settlement with many investors that reduced the amount they had to pay.
Another large-scale scandal that some have called a Ponzi scheme involved famed insurance market Lloyd's of London. In the 1980s, the company rapidly brought new investors, many from the U.S., into its formerly exclusive market. The attraction to these new investors, aside from the lure of good returns, was the chance to become a "name," a prestigious status which had been mainly limited to British aristocrats. These investors were often lured into the most risky and least productive syndicates, exposing them to huge liability and, in many cases, ruin.
http://online.wsj.com/article/SB123093987596650197.html
Sad News: Madoff Investor’s Suicide Was an ‘Act of Honor’
Thierry Magon de La Villehuchet’s sense of honor led the descendent of French army officers and an ennobled shipping family to commit suicide after he put his friends and family in a “catastrophic” financial situation by investing with Bernard Madoff, his brother said.
Villehuchet, 65, chief executive officer of Access International Advisors, believed that he had lost all of the funds invested with Madoff’s eponymous investment firm, including the $1.4 billion LUXALPHA SICAV-American Selection managed by Access, Bertrand Magon de la Villehuchet said in an interview.
“For him, it was a positive act of honor,” said Bertrand, 74, who lives in Paris and received a note from his brother after Thierry’s death. “He brought his friends and clients, and a lot of them were his friends, to a catastrophic situation.”
Access managed $3 billion and had 26 employees, according to marketing documents dated September. The firm’s investors last year raised the proportion of funds with Madoff to about 75 percent from 30 percent previously, because Madoff appeared to generate positive returns while many other hedge funds crumbled, said Bertrand Magon de la Villehuchet. Madoff was arrested Dec. 11 for allegedly running a $50 billion Ponzi scheme.
Bertrand Magon de la Villehuchet said he put 20 percent of his own wealth into LUXALPHA. His brother entrusted his entire fortune to Madoff.
“I was bragging at parties that I’d only lost 5 percent this year,” Bertrand said at his apartment on the Place des Vosges in Paris. “Now I guess I’ve lost 25 percent.”
Body Found
Thierry Magon de La Villehuchet’s body was found Dec. 23 with his feet propped up on his desk and a trash pail nearby to collect blood, New York Police Commissioner Raymond Kelly said. Villehuchet had cuts made by a box-cutter in the area of his biceps and his wrist, and pills were found nearby.
His death came as lawsuits mounted in connection with investors victimized by Madoff. Fairfield Greenwich Group, a hedge-fund firm that had $7.5 billion invested with Madoff, has been sued for allegedly failing to protect its clients’ assets. Madoff is now under house arrest at his apartment in New York.
Villehuchet was chairman and CEO of Credit Lyonnais Securities USA, the U.S. investment banking arm of the French bank, according to Access marketing documents. Prior to joining Credit Lyonnais in 1987, he ran Interfinance, an international broker specializing in French, Belgian and Italian stocks that he founded in 1983. He worked at Banque Paribas from 1970 to 1983.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1dnq3VWwOs&refer=worldwide
Villehuchet, 65, chief executive officer of Access International Advisors, believed that he had lost all of the funds invested with Madoff’s eponymous investment firm, including the $1.4 billion LUXALPHA SICAV-American Selection managed by Access, Bertrand Magon de la Villehuchet said in an interview.
“For him, it was a positive act of honor,” said Bertrand, 74, who lives in Paris and received a note from his brother after Thierry’s death. “He brought his friends and clients, and a lot of them were his friends, to a catastrophic situation.”
Access managed $3 billion and had 26 employees, according to marketing documents dated September. The firm’s investors last year raised the proportion of funds with Madoff to about 75 percent from 30 percent previously, because Madoff appeared to generate positive returns while many other hedge funds crumbled, said Bertrand Magon de la Villehuchet. Madoff was arrested Dec. 11 for allegedly running a $50 billion Ponzi scheme.
Bertrand Magon de la Villehuchet said he put 20 percent of his own wealth into LUXALPHA. His brother entrusted his entire fortune to Madoff.
“I was bragging at parties that I’d only lost 5 percent this year,” Bertrand said at his apartment on the Place des Vosges in Paris. “Now I guess I’ve lost 25 percent.”
Body Found
Thierry Magon de La Villehuchet’s body was found Dec. 23 with his feet propped up on his desk and a trash pail nearby to collect blood, New York Police Commissioner Raymond Kelly said. Villehuchet had cuts made by a box-cutter in the area of his biceps and his wrist, and pills were found nearby.
His death came as lawsuits mounted in connection with investors victimized by Madoff. Fairfield Greenwich Group, a hedge-fund firm that had $7.5 billion invested with Madoff, has been sued for allegedly failing to protect its clients’ assets. Madoff is now under house arrest at his apartment in New York.
Villehuchet was chairman and CEO of Credit Lyonnais Securities USA, the U.S. investment banking arm of the French bank, according to Access marketing documents. Prior to joining Credit Lyonnais in 1987, he ran Interfinance, an international broker specializing in French, Belgian and Italian stocks that he founded in 1983. He worked at Banque Paribas from 1970 to 1983.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1dnq3VWwOs&refer=worldwide
Tears On The Trading Floor
The end of Merrill Lynch was not as quick and maybe didn't seem as final (at the time) as the denouement of Bear Stearns or Lehman Brothers, but it was nevertheless as painful for those who worked there. Merrill now, of course, is no more. On Monday 15th September last, the firm agreed to be taken over by Bank of America, and that deal closed on January 1st, ending 95 years of independent history. And all over the globe, as the final business day of the year neared its end Wednesday, Merrill employees looked back at an historic year in sorrow and forward to a new one in somewhat trepidation.
One Merrill staffer told Here Is The City: 'There were tears on the trading floor Wednesday, as the curtain came down on Merrill Lynch. And the mood around the firm is generally a mixed one. We are glad that we didn't go the same way as Lehman, but are clearly concerned about how many of us will lose our jobs in the new organisation in 2009'. Up to 35,000 jobs are now thought likely to go in the combined business as Bank of America CEO Ken Lewis attempts to bag those $7bn in cost-savings, and the financial and economic crisis continues to take a toll on headcount.
Associated Press also reports that at the closing bell on New Year's Eve on the fifth floor of the World Financial Center in Manhattan, Merrill employees held a 'clapoff'. Hundreds are said to have applauded, paying solemn tribute to the firm that many regarded as home....
http://news.hereisthecity.com/news/business_news/8587.cntns
One Merrill staffer told Here Is The City: 'There were tears on the trading floor Wednesday, as the curtain came down on Merrill Lynch. And the mood around the firm is generally a mixed one. We are glad that we didn't go the same way as Lehman, but are clearly concerned about how many of us will lose our jobs in the new organisation in 2009'. Up to 35,000 jobs are now thought likely to go in the combined business as Bank of America CEO Ken Lewis attempts to bag those $7bn in cost-savings, and the financial and economic crisis continues to take a toll on headcount.
Associated Press also reports that at the closing bell on New Year's Eve on the fifth floor of the World Financial Center in Manhattan, Merrill employees held a 'clapoff'. Hundreds are said to have applauded, paying solemn tribute to the firm that many regarded as home....
http://news.hereisthecity.com/news/business_news/8587.cntns
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