pwned

Presented without further commentary:

The "person" who spread the AIG loan rumor was Bernanke

Perhaps I didn't give Helicopter Ben enough credit. He's a crafty little bearded fella. Right after the markets dropped as the Fed unanimously decided to hold rates steady a rumor came out on the Bloomberg about the Fed extending a loan to AIG after all causing everything to return to normal as if the non-cut never happened.

BLOOMBERG TEXT:
Sept. 16 (Bloomberg) -- The Federal Reserve is considering
extending a ``loan package'' to American International Group
Inc., the insurer facing a cash shortage, according to a person
familiar with the negotiations.
The stance by federal regulators is a reversal from a
position they held as late as last night, and people with
knowledge of the talks are ``cautiously optimistic,'' said the
person, who declined to be identified because negotiations are
confidential.
The person gave no timetable for reaching an agreement or
estimate on how much money New York-based AIG would need. New
York Fed spokesman Andrew Williams declined to comment.

File under: Desperate

(if you haven't noticed the trend yet, when a financial firm says they're well-capitalized and liquid you need run in the opposite direction as fast as you can)

clipped from dealbreaker.com

Quick Predictions: WM to be bought by WFC and other probabilities

Here's what I'm thinking:
WM: Will either go bankrupt (CDS has been trading as if it already is since last week) or get wrapped up on the cheap. I would say the latter is still slightly more likely, and I am calling out WFC as the most likely suitor in a deeply discounted all-stock deal. It's the only large regional that has fared well throughout this turmoil, and they could use WM's retail and small-biz base.
AIG: The "too big to fail" arguement doesn't float anymore with the taxpayers, and it's finally getting through to Washington. You can't open the floodgates and bail out every single large firm. Furthermore, AIG is in a position to sever a limb (their toxic Financial Services unit) to save their life, and they should do precisely that. All the financial executives have ruined themselves and their employees through the hubris of trying to remain an indepent going concern against all odds. Two words for those who are left standing: Stop Loss.
Fed Move: The market is pricing in a 25bps cut, and that's what I believe will happen. I would prefer the Fed holds tight, giving the markets the financial equivalent of a suppository, but I doubt Bernanke has the guts to bear the fallout. A 50bps cut, however, will deplete ammo that the Fed will very likely need should bigger problems surface. And they certainly will.

Did everyone forget what Ken Lewis said (including Ken Lewis)?

With all the talk of BAC buying LEH, I have to wonder if everyone forgot what BofA's CEO said less than a year ago, shortly before all but dismantling all of BofA's IB infrastructure.

clipped from blogs.wsj.com Here is what Lewis, the CEO of Bank of America, had to say on the company’s conference call to discuss its third-quarter results about an acquisition or joint-venture deal to salvage the dismal performance at its investment-banking unit (where profit fell 93% to $100 million). “I never say never, but I’ve had all the fun I can stand in investment banking at the moment.” So much for the hopes of some investors that the company will make an acquisition (of a Bear Stearns, or a Lehman Brothers or UBS’s Wall Street unit) to once and for all get into the top tier of investment banks — and perhaps acquire some adult supervision for its trading operation along the way.

Storm Before the Calm in Georgia

You know I'm rarely a fan of Purin's policies, but their retaliation to Georgia's attack on South Ossetia is a clear case of doing the right thing for strategic reasons. Sure it helps Russia in terms of securing invaluable alternative pipelines (precisely why they won’t get support from China, at least not for free), but at least Russia will be smart enough to utilize them once the situation stabilizes.

Conversely, the US is just now starting to even attempt to get any benefits from Iraq’s oil because we were so damn scared about giving credence to the hippie “blood for oil” propaganda. This is even though Iraqis desperately need the oil money, as well as help in creating modern machinery to extract and transport it. Naturally we should be able to pick American companies for this, and they should be compensated for their services. Does this help Exxon, et.al.? Of course – and the U.S. government too thanks to disproportionate taxes. Are the Iraqis better off? Indubitably, and they can solicit new bids once existing contracts expire.

For the world to call Georgia a small peaceful nation is a half truth – it is, in fact, quite small. Georgia was the original aggressor in this conflict, and Misha’s much-talked about Western education did him little good, as he was unable to predict the obvious outcome of attacking a region favored by Russia. While Russia certainly cares far less about collateral damage than Western nations, Georgians have been engaged in outright genocide for some time as anyone familiar with Ossetia will tell you.

Fortunately for the US and European propaganda machines, however, most people thought Ossetia was Borat’s whore sister until these recent news, and Putin with his sidekick doesn’t need much help in looking like a supervillain.

Of course while NATO and US can send over all the sideline troops they want, their commanders are [hopefully] not stupid enough, to actually engage Russia – in which case I’ll be blogging from the nearest nuclear shelter. A stern warning is all that the UN can give Russia, and Putin is well aware of this. As I said before, Putin’s activities over the past 2 years have really been testing the limits of his power, and now it seems he’s found an area of slightly more resistance than killing a former spy. All this means is that Mother Russia will wait for some time before officially adopting the new “independent” territories.

Unless the UN can get China to throw their full support behind them they have little alternative than to be angry spectators.

clipped from afp.google.com Russia's military said it would carefully monitor a "build-up" of NATO naval ships in the Black Sea, amid anger at Moscow's recognition of Abkhazia and South Ossetia , regions that broke from Georgian control in the early 1990s. "Certainly some measures of precaution are being taken.... Let's hope we do not see any direct confrontation in that," spokesman Dmitry Peskov said, adding: "It's not a common practice to deliver humanitarian aid using battleships." Russia's ambassador to NATO, Dmitry Rogozin, warned that any NATO attack on the Moscow-backed regions would "mean a declaration of war on Russia." In a departure from Beijing's usual firm support for Moscow, Chinese foreign ministry spokesman Qin Gang was quoted as saying: "China is concerned (about) the latest development in South Ossetia and Abkhazia." President George W. Bush said Russia should reverse its "irresponsible decision." Medvedev appeared unapologetic, saying on Tuesday: "We're not afraid of anything."

They never learn

Western firms will keep lining up at Russia's oil teat for a drop of black gold, no matter what they have to endure to get there, or how little substance they'll get from the deal before Russia thanks them for building the infrastructure by kicking them out on their ass and taking the enterprise over. I'm amazed at the gullibility and stupidity of these major corporations. You'd think they would learn after Sakhalin.
Ironically, in an earlier Bloomberg article BP stated they would love it if Gazprom bought out the current Russian partner's stake in the business. Right - because having a firm that has already established a clear policy on ethics in regard to foreign business (Page Intentially Left Blank) and is responsible for making billionaires out of most people in the government, including the current President, is a far better partner than 3 oligarchs who just want you to pay them off better.

clipped from online.wsj.com Robert Dudley, head of BP PLC's Russian joint venture TNK-BP Ltd, abandoned Russia Thursday for an undisclosed location after Russian authorities refused to issue him a new work visa. His move could mean that BP loses control of a company that accounts for a quarter of its global oil production and 19% of its reserves. Since the conflict between BP and its Russian partners dozens of TNK-BP foreign employees have been forced to leave Russia after difficulties renewing their visas. The company also has been subject to a flood of tax, police and other probes. In an interview, Tony Hayward, BP's chief executive, denied the dispute threatened the British oil major's presence in Russia. Western businessmen and governments had been watching the TNK-BP dispute for signs of the direction Russia was moving under Dmitry Medvedev, the new president, who has said he wants to improve the rule of law in Russia, especially for business. The fate of BP's landmark Russian venture was seen as a litmus test.

Speculator Scapegoats

So both sides of the political fence are suddenly blaming “speculators” for the move in oil prices. Of course I know why (big oil, bigger lobby vs. a vague and easily vilified group).

But how does this make any sense to someone with half a brain (i.e. 3% of the electorate):

1. How do you define speculators?
1. If Big Oil wasn’t speculating Grandma Millie would have her lights on and high-earning big oil traders wouldn’t have a job. I can create a black box model that will look at real-time S&D and put in the equilibrium trades in real time. Yet all big oil companies pay the most to their traders …who are only there to hedge?
2. All the biggest energy funds & prop desks in the world couldn’t put enough volume through to drive the price up that much compared to the volume that the “hedgers” do. Furthermore, how many “speculative” funds do outright directional bets instead of spreads?
3. The only thing close to a “legit” hedger is an airline/trucker type business if all they do is buy a bunch of CL12s and chillax.
2. Isn’t this locking up the free market?
1. Speculators shouldn’t have any inside information (unlike the big oil “hedgers” who by definition do), so aren’t they just providing “efficiency” to the market? Even my nemesis, Fama, would agree with me here. In fact, without speculators providing liquidity the true hedgers would be fucked and the market would be at the mercy of the faux hedgers.
2. Furthermore, arbitrary regulation of speculators goes against the very principles of capitalism. To stop someone from buying a good at the current price in the market just because you think they’re paying too much is so pinko it could be a gay groom’s dress in California. Hey, if they’re all wrong then the commodity bubble will burst (which I think it will, but not until >$150 oil at least) and magically gas will be $2/gallon again.

Now everything I've outlined above is very basic, so there's a good chance I'm missing something. If so, by all means make me a fool and point it out. Otherwise it looks like we're in for Big Government (just not for those who need the regulating) no matter who wins in November.

Village idiot goes bankrupt, remains optimistic

Shawn Forgaard is completely unfazed by the fact that his investment idiocy (9 homes with neg-am loans? with 800k in options to invest?) lost his family everything. Apparently he knew all along that the housing market was shaky as he bought properties in all the "hottest" (i.e. most overinflated) markets, but dismissed the law of buy low/sell high as "so Web 1.0". Now about to go into bumcracy somewhere in the Tenderloin this fellow is planning on starting a business with all his free time. Which begs the question - with whose money? I just can't see VCs lining up to his door ...or lack thereof. That being said, I've prepared a pitchbook to help Shawn on his path:

clipped from www.reuters.com Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience. "On the surface it looks like total devastation but it's just the opposite. I'm confident our lives will be much, much richer as a result." Using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans -- in which payments do not cover the interest so that a borrower's balance grows over time. Forgaard bought his first investment home in the booming housing market of North Las Vegas in 2004, followed in the next two years by eight others in such hot markets as Phoenix and Palm Springs, California, before he realized in 2006 that the situation was worse than he had feared. "I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm. It really wasn't until five months ago that I realized, 'Hey, you know what? Not only am I going to lose everything I have invested but this is going to force me into bankruptcy," he said. "I'm going to lose my car and my primary (home) and we're not going to be able to live in Santa Cruz, where I was born and raised, and live by the beach. And that was pretty tough to take." The Forgaards likely will sell their Santa Cruz home and declare bankruptcy before banks start foreclosing on his properties. With a newborn son, they intend to start over in his wife's Northern California hometown. Forgaard said that some good has come out of the experience and that his family is optimistic. He is relieved that he no longer has to deal with 10 homes at once and now will pursue a lifelong dream of starting his own business.

Jimmie takes it from Jamie

So everyone heard the word that Jimmy Cayne sold virtually all his stock at $10.84 today, which most people took to mean he considers that $10 is the most that Bear can expect to get, and just wanted to arb the 84 cents before it was too late. The reality is much more likely that Jimmy was indeed trying to fluff up new suitors, as was rumored, but Jamie Dimon stepped in to put a stop to that - promising Cayne a nice private payout in cash and/or JPM stock later, perhaps even a couple years after the deal gets cemented (like shoes on all the Bear brokers who are getting axed). To guarantee this Jimmy merely had to immediately sell his stake in the firm, thereby sending an all too clear and irrevocable signal to other shareholders to shut the fuck up and sign on the dotted line.

Hedging Political Risk

The title of the post is what I hope the hedgies donating to the DNC are doing, but - alas I fear this is largely not true. There are a whole lot of BSDs walking around with no balls these days. Indeed, many young bankers and hedgies I've met are Democrats - brainwashed into guilt for being successful from their days in undergrad, and eager to do anything - including giving the pants off their ass (the shirt is already being ripped off by current bonus taxes) to feel good about themselves. Anything, but rationally think through the policies fronted by Democratic candidates and the DNC and - if they disagree with them (and if they don't, why are they in the business of "ripping off" Grandma Millie?) - take a stand for what they believe in.

clipped from www.finalternatives.com Over the past three election cycles, hedge fund managers and their colleagues have become some of the most important donors to Democrats and Democratic candidates. Of the more than $3 million in hedge fund cash given to presidential candidates last year, 75% went to Democrats. Party leadership is hoping to leverage this newfound strength with a New York fundraiser aimed specifically at hedge fund professionals. Even after last year’s aborted attempt by Democratic congressional leaders to more than double the tax rate paid by some in the alternative investment industry, hedge fund money continues to pour in “When people with high incomes, or who benefit from particularly low capital gains rates, support Democrats, it’s because they care about the posture of the United States abroad. They care about an utter lack of fiscal discipline. In other words, there is a set of issues that people care about that becomes more important than their marginal tax rate.”

Hillary thinks all hedgies are slackers like her Daughter

Not content with merely biting the hand that feeds, HillDog wants to amputate an arm and a leg from her surprisingly large following of financiers. Today she called out Wall Street bankers and hedgies as living a life of bespoke leisure, collecting fat fifty million paychecks and barely paying a pence in taxes (so why did my bonus, which accounts for 80% of my pay get taxed at 42% then?). Of course this is what Chameleon Clinton is preaching to the dirt-poor delegates of Ohio, and quite different from what she said while raising millions in her "native" New York.
Incidentally, how the fuck is that little ho (I mean that literally, not derogatory) Chelsea still on the payroll of Avenue Capital? First she dissed her employer's health care and now her mom is calling them all shysters and charlatans. Oh and before the campaign kicked into high gear Chelsea was slaving away at Starbucks. Actually - if Hillary is basing the hedgie lifestyle on her daughter's actions you can almost hardly blame her. Oh wait, but that's where all that experience should have come in...

clipped from blogs.abcnews.com Sen. Hillary Clinton took a swipe at her daughter's profession today at an economic roundtable discussion at a restaurant in Parma, Ohio, suggesting wealthy investment bankers and hedge fund managers on Wall Street aren't doing real 'work.' "We also have to reward work more," Clinton told a small group of Ohio residents today. "and by that, I mean, I have people in New York working on Wall Street as investment managers, as hedge fund executives. Under the tax code, they can pay a lower percentage of their income in taxes on $50 million dollars, than a teacher, or a nurse, or a truck driver in Parma pays on $50,000. That's very discouraging to people." The line about investment fund and hedge fund managers has been introduced into Clinton's talking points as she campaigns across the economically struggling state of Ohio.

Hova Called the Crash

Jay-Z called the crash way back in the summer on his duo with Rhianna, Umbrella, and urged his audience to start saving… if only they listened then maybe they wouldn't have to rely on the government and banks to bail their asses out. Incidentally I should have listened to HOV as well and added some more sector shorts, but I'm just not a Rhianna fan.

No clouds in my stones
Let it rain, I hydroplane into fame
Coming down with the Dow Jones
When the clouds come we gone
We roc-a-fella
We fly higher than weather in G5's or better
You know me, in anticipation for precipitation
Stacks chips for the rainy day

Maybe now that's he no longer CEO of the Def Jam he can start a hedge fund... After all Jigga was a commodities trader before he ever became a rap superstar (and showed his FX smarts by flashin Euros in his video for Roc Boys - as the greenback was tumbling quicker than Fiddy's career).
The coke prices up and down like it's Wall Street homes,
But this is worse than the Dow Jones your brains are now blown.

Why I'm short equity right now...

Tomorrow we'll see if Bernanke has any balls.
If he admits that the 75bps emergency cut was too extreme, given that the MLK market volatility resulted in a big part from SocGen's seppuku as they surrendered to losses in a way only the French could (by immediately liquidating all their massive "fraudulent" positions and flooding the market instead of doing it gradually like any normal trading house would), he will cut rates 25bps. Of course this is still 100bps for the month, which sets us up nicely for stagflation in the near future, and 50bps more than the market originally estimated for January.
Nevertheless, even after every last financier, from BSD to Broker, had their chance to laugh at SocGen's Krevieling stupidity the market is still demanding a 50bps cut. Thus if Helicopter Ben continues playing limbo to the market's benchmark nothing will change (maybe a 2-3% intraday spike at most), but if he shows some backbone and cuts 25 the markets will tumble.
That's why I'm short SPH8 with an ATM straddle to hedge the vol (and compound profit) . Tomorrow should be fun.

Update: So ball less Bernanke cuts 50bps. Like I said - short intraday spike to unwind the call from the straddle and keep the put for free. All in all, nothing lost (except the credibility of the Fed).

Update 2: So even a fiddy ain't enough for the markets, as SPX finished down a percent. Good news for me though - I sold all three parts (call, put, future) in the money before market close. This turned out to be a pretty great trade, after all.

The "Real" PR from the Dirty Bear

BEAR STEARNS NAMES ALAN D. SCHWARTZ CHIEF EXECUTIVE OFFICER, SUCCEEDING JAMES “JOINT” CAYNE, WHO REMAINS CHAIRMAN

New York, New York — January 8, 2008 — The Bear Stearns Companies Inc. (NYSE:BSC) announced today that James E. Cayne has informed the board of directors of his desire to step down as chief executive officer, effective immediately after he finishes this phat blunt. While Mr. Cayne will retire from the firm, he will stay on as chairman of the bong and will be succeeded as chief executive officer by Bear Stearns president Alan D. Schwartz.

"Jimmy has much to be proud of -- under his leadership Bear Stearns has grown substantially over the past 15 years, with revenues increasing to $7 billion from $2 billion. We can’t say for sure that any of this actually happened because of Jimmy’s leadership, but he was in his office for at least half of those 15 years, so maybe it did." said Vincent Tese, Bear Stearns lead independent director. "This was mainly his decision, and we are very pleased that he has agreed to stay actively involved in the business as chairman of the bong. We can never find the good shit ourselves."

Mr. Cayne, commented, "I am elated and, frankly, surprised that the board has continued confidence in me" he said. "Leading Bear Stearns and its wonderfully talented people has been one of the great joys in my life for nearly 15 years. I’ve never had the chance to play bridge and smoke with such talented people, or play so much golf – not that it helped my handicap." Cayne added that he would remain in the same office, come to work as many days as he used to as CEO and work the same number of hours as before. [not making that one up from - see Bloomberg]

"I am dubiously honored to have the opportunity to lead one of Wall Street's great franchises," said Alan D. Schwartz, president of Bear Stearns. "Bear Stearns has a bright future now that the smoke has cleared. Our franchise is crack-rock solid thanks to Jimmy's leadership, so I have much work to do. We had a strong capital position before our market cap halved last year, a unique culture that rewards absenteeism and casual drug use, and great talent throughout the organization – especially the 4^th floor men’s room."

Alan D. Schwartz joined Bear Stearns in 1976. He became executive vice president and head of the Investment Banking Division in 1985. Mr. Schwartz was named president and co-chief operating officer in June 2001 and sole president in August of 2007 after Mr. Cayne fired Warren Spector since he was the only senior executive actually at the office during the firm’s meltdown. "Jimmy Cayne is a Wall Street legend, he’s practically the Cheech and Chong of the Street. I've learned a lot from him in the 30 years we have been friends and partners here at Bear Stearns – especially while in the 4^th floor men’s room, and I am pleased we will be able to continue our relationship." Mr. Schwartz said.