Intellectual Arbitrage

The Credibility of Credit Agencies

2010-03-15T15:58:00.001-07:00

Peter Chatwell is almost spot on here. He says that Moody's "report is a warning shot to governments, setting out the line that they can’t cross with their budgets." Actually, he's only off by a single letter.
This is Moody's putting on a show of the Burlesque variety, all tease and no tits, to convince someone, anyone, that they and their brethren credit agencies are even remotely relevant or accurate. Remember that these are the same companies that would, by their own admission, rate a "deal structured by cows." A long time ago I said that this crisis would cause the US to lose its AAA rating, but I've long since realized that the rating is meaningless - and that it will never change. The dubious relationship between a sell-side research analyst and his bank's top client appears downright honorable when compared to that of a rating agency and firms that write agencies checks to grade their bonds.
Look, you can't have Mark to Magic without the magicians, but now that the rabbit is out of the hat and into the frying pan the curtain must fall on this sideshow.

clipped from www.bloomberg.com.

The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years. Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA.

Achieving the fiscal consolidation necessary to avert a downgrade will test “social cohesion” and may involve rewriting the “social contract” between governments and their people, Cailleteau said. “People have to decide what level of pain they are willing to accept to have a healthy economy.”

Two-face would be more appropriate than Joker

2010-02-10T09:44:00.001-08:00

All of a sudden, or rather after reports of Banks' PACs and executives switching their donations to the elephant after the donkey's teat turned sour, Obama comes out as a supporter of bonuses and a champion of capitalism, telling Democrats that "We’ve got to be the party of business, small business and large business.”

clipped from www.bloomberg.com

President Barack Obama speaking in an interview, said in response to a question that while [Dimon's bonus of] $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

Dimon, 53, led New York-based JPMorgan, the second-biggest U.S. bank, to a profit during each quarter of the financial crisis. Blankfein, 55, was at the helm when New York-based Goldman’s shares doubled last year as profit soared to a record high. [Sounds like they didn't just make the Series: Dimon won the Golden Glove, and Blankfein got the Cy Young trophy too.]

“I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.”

President Barack Obama called bank bonuses “obscene” at least twice this year.

Obama is “trying to walk a very fine line,” said Mark Borges, a compensation consultant “He wants to represent popular anger at the bailout and Wall Street pay, while at the same time trying not to alienate these guys, who he needs [to give him the "obscene" amounts of money that he relied on to win the 2008 election.]

The New State of the Union

2010-01-14T07:27:00.001-08:00

clipped from dealbook.blogs.nytimes.com

President Obama plans to call on Thursday for taxing about 50 big banks and major financial institutions for at least the next decade to recoup all taxpayer losses from the Wall Street bailout fund.
While the banks maintain that taxpayers made money from the bailout to save them (many have repaid their federal funds with interest and the government also has made money in selling the banks’ warrants that it held as collateral), losses to the bailout fund are expected from money paid to rescue the automakers Chrysler and General Motors and the insurance giant American International Group, and from a program to help troubled homeowners avert foreclosures.
The administration official said that the auto manufacturers and A.I.G., as well as the housing finance giants Fannie Mae and Freddie Mac, both of which now are under government conservatorships, are not in a financial position to be taxed to recover taxpayers’ losses.
The administration is calling the tax a “financial crisis responsibility fee,”

Taxing those who paid their loans back early and at a profit to the American people to pay for failures who are explicitly excluded from the tax and calling it a "responsibility fee" is perverted irony that passes for logic in the current Administration.
I'm not saying the banks didn't have a hand in the crisis because that's just as absurd as saying that they were more responsible than Washington lawmakers gagged by lobbying bribes and regulators who should be charged with criminal negligence. Let's not forget the American people, so quick to let their fingers be pointed for them at an easily vilified target. Groupthink on this scale hasn't been seen in 70 years. Nobody wants to blame themselves when it's so much easier to demand reparations from the rich with your head held high. After all, in our culture that honors victims before heroes being impoverished connotes a certain moral superiority - which makes it all the easier to remind the wealthy of their noblesse oblige.

The answer is inside the belly of the beast

2009-10-01T10:17:00.001-07:00

clipped from www.cnsnews.com

Documentary film director Michael Moore, who has become a millionaire thanks to the profits from his movies, told CNSNews.com that “capitalism did nothing” for him.

“You know, I had to pretty much beg, borrow and steal,” he said. “The system is not set up to help somebody from the working class make a movie like this and get the truth out there.”

“In fact, in Fahrenheit 9/11 if you remember, capitalism, the Disney Corporation, tried to kill that film--tried to make it so that people couldn’t see it,” said Moore.

Moore reportedly was paid $21 million by Disney for producing, directing and creating the film.

Moore also earned 50 percent of the profits of his 2007 film “Sicko,” totaling $25 million plus DVD sales, according to Vanity Fair.

CNSNews.com asked: “Critics may say, when they see this movie, Michael Moore has amassed a fortune of over $50 million, some have said and –”
Moore said: “Really? Are you kidding me? Seriously? Wow. Where did it go?”

The good news is that if single-payer health care passes Moore will either die from a heart attack or be found out to have used private doctors (like the wealthy liberals in "progressive" Western democracies Moore talks about do) and defrauded as a grade-D pork once and for all.

An MBA in Hustling

2009-09-30T16:45:00.001-07:00

Given the amoral utilitarianism of Russia's oligarchs it's not surprising that they would be willing and able craft what may very well become one of the only business schools that's more than a circle jerk rest stop for burned-out bankers and bored corporate types seeking to switch careers.
Learning how to deal with the prevalent issues of politics, bureaucracy and corruption is applicable not just to emerging markets, but to the developed world as well. Wherever there are puppet politicians there are puppeteers pulling the strings.
Furthermore, anyone who has worked for a large corporation understands the importance of successfully navigating office politics and greasing bureaucracy's palm to free oneself from its suffocating grasp.

clipped from www.businessweek.com

A handful of top Russian business figures have created an MBA program that tackles the issues they faced themselves: bribery, relentless bureaucracy, imperfect laws.

Skolkovo includes classroom courses in management theory, but invites dozens of guest speakers [and] might even invite an organized crime boss to talk about the challenges of management.

Skolkovo faculty members say they avoid moral judgments, and offer no ready-made strategies for handling corruption and predatory practices.

Among the patrons are some of the Russian business world's biggest names: Abramovich, the billionaire investor and owner of the Chelsea football team, donated 26 hectares (64 acres) of choice land outside Moscow for the construction of the gleaming $250 million campus, which has its own helipad.

Skolkovo's training doesn't come cheap. Fees for a full-time MBA including accommodation, flights to India, China and the U.S. come to euro50,000 ($74,000).

A Darling Buffoon

2009-09-28T14:13:00.001-07:00

Alistair Darling must have slept through his maths classes in elementary school. If you want to get tax revenue from the rich, but also command firms to curb bonus payments then where are you going to get that extra money from?
At least he is being completely "Frank" about his socialist, Robbin' Hood, ideals. Maybe Labour should just drop the pretense and rename themselves the Pathetic Proletariat Party.

clipped from www.bloomberg.com

Chancellor of the Exchequer Alistair Darling, targeting what he calls “greed and recklessness” in Britain’s financial system, asked banks to curtail bonuses and said the rich will pay more in tax.

“It is right that those who earn the most should shoulder the biggest burden.”

“We will introduce legislation to end the reckless culture that puts short-term profits over long term success. It will mean an end to automatic bank bonuses year after year.”

Darling said he has raised tax rates and eliminated relief for pension contributions for the rich.

This week, Darling will [ask bank heads of remuneration] that they reduce bonus payments at the ahead of a change in the law aimed at formalizing curbs on pay.

“The government’s implicit presentation of excessive remuneration as the cause of the crisis, and the banking bill as a silver bullet that will kill off financial excesses, is singularly unconvincing,” said Simon Morris, a partner at law firm CMS Cameron McKenna.

Robertson puts it in real simple terms for the fools on the Hill

2009-09-24T13:14:00.001-07:00

...but somehow I doubt even these clear and irrefutable facts from one of the brightest minds in finance will make them listen.
When all you're thinking about is reelection, or your immediate problems - in the case of dimwitted constituents, it's hard to see past to the burgeoning debt load that will put a vice grip on future generations. At least we'll all be green - cars will be too expensive and dollars will be crowding out all other colors in landfills.

clipped from www.cnbc.com

The US is too dependent on Japan and China buying up the country's debt and could face severe economic problems if that stops, Tiger Management founder and chairman Julian Robertson told CNBC.

"It's almost Armageddon ... if the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent.

It's not a question of the economy. It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.”

“The other thing is, they're buying almost exclusively short-term debt. And that's what we are offering, because we can't sell the long-term debt. And you know, the history has been that people who borrow short term really get burned.”

"The U.S. has to quit spending, cut back, start saving, and scale backward," Robertson said. “I really do think the recession is at least temporarily over. But we haven't addressed so many of our problems and we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bonds.”

More Quants shifting to Behavioral Finance

2009-09-17T09:26:00.001-07:00

Behavioral finance, which once was a footnote in most advanced economics textbooks is now coming to the forefront of financial engineering as quants realize that models must account for the facts that market participants - when pushed beyond their comfort zone - will rarely act efficiently.
As followers of this blog will know I never bought into the EMH, and so have a perennial interest in modeling behavior in the markets. Exploiting inefficiencies is the true path to arbitrage profits.
Of course if quant models start trading against what they perceive as erratic human behavior it's inevitable that they themselves will act erratic at times. It's a Catch-22 of trying to predict the unpredictable.
The added volatility this brings should make things a lot more interesting in the coming years. It will also make whoever can decipher the decision pathways of both the black boxes and gray ones a whole lot of money.

clipped from www.nytimes.com

IN the aftermath of the great meltdown of 2008, Wall Street’s quants have been cast as the financial engineers of profit-driven innovation run amok.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic.

“When trust in counterparties is lost, and markets freeze up so there are no prices,” said Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business.

The drive to measure, model and perhaps even predict waves of group behavior is an emerging field of research.

“You don’t need a model of human psychology to see that there was a danger of impending disaster,” Mr. Farmer observed. “But economists have failed to make models that accurately model such phenomena and adequately address their couplings.”

I highly recommend reading the rest of the article for a look at two very different approaches to modeling investor behavior.

White House wants to bring out the Pavlik Morozov in all Americans

2009-08-05T17:30:00.001-07:00

I am sure this name Pavel Morozov is foreign to Americans. In a nutshell, he was a darling young boy who achieved martyrdom in Soviet Russia by reporting his father's un-Partylike activities to the police. The father was summarily arrested and executed, and Pavlik's family, unable to see his unbridled patriotism, murdered him. There are statues of Pavlik throughout Russia, and schoolchildren were ~~indoctrinated~~ taught about his courage and bravery.
The Administration hopes that Joey Sixpack will take Morozov's fallen torch by sending in "fishy" emails about the President's Master Plan to the authorities at the White House. Can you imagine the [completely justified] outcry had Bush enacted such a policy?
I am sure that this story will be generally dismissed by the media and quickly die down in popularity (maybe the President can stage a bourbon summit as a distraction this time?), but the fact remains that fundamental principles on which this country was founded upon are being ever so slightly encroached.
Put a frog in boiling water and it'll jump out, but turn the heat up slowly and it will never realize that it's being boiled alive.

clipped from www.whitehouse.gov

Opponents of health insurance reform may find the truth a little inconvenient, but as our second president famously said, "facts are stubborn things."

Scary chain emails and videos are starting to percolate on the internet, breathlessly claiming, for example, to "uncover" the truth about the President’s health insurance reform positions.

There is a lot of disinformation about health insurance reform out there, spanning from control of personal finances to end of life care. These rumors often travel just below the surface via chain emails or through casual conversation. Since we can’t keep track of all of them here at the White House, we’re asking for your help. If you get an email or see something on the web about health insurance reform that seems fishy, send it to flag@whitehouse.gov.

CFTC Helping Green America with $10 Gas

2009-07-28T08:19:00.001-07:00

I'm starting to see the brilliant foresight of the master plan of our current Administration's social engineering program. Eroding liquidity in the energy markets that are easily accessible to hedgers (gas pump operators, airlines, utilities, etc.) who actively need big banks & other investors (speculators) to take the other side of their trades will certainly cause gas prices to spike at the pump, make air travel & shipping the luxury it once was, and ensure that the President is the only one who can keep his office tropically warm in the winter.
Since companies won't be able to put floors on the price of gasoline, natural gas and other commodities their costs will be at the mercy of a very volatile supply and demand and they will have to adjust their prices up to ensure they can still make a profit in any given quarter. That is, until they're nationalized because they can't sustain independent operations anymore and are too big to failll into the wrong hands (like those of a successful foreign company that might fire some US union workers).
This policy will at once force people into buying hybrids and increase the cost of imports (which makes Obama's protectionist allies happy). Of course it would be extremely unpopular to achieve these goals through gas taxes and import tariffs. Making this appear to be a crusade against evil market manipulators makes it far easier to achieve the same results with popular support.
Of course with taxes and tariffs at least the government would make some money to pay back the exponentially expanding debt load, but that's the problem of another generation. At least the Earth they'll inherit will be green, that's good since all their money will be going to interest payments they'll have to learn how to live off the land.

clipped from online.wsj.com

CFTC Will Pin '08 Price Surge on Speculators, in a Reversal From Bush Findings.

Under Chairman Gary Gensler, appointed by President Barack Obama, the CFTC is departing from the more hands-off approach it took under its previous head, a George W. Bush appointee. During his confirmation process earlier this year, Mr. Gensler said he believed speculation was partly behind the surge in commodity prices.

In the U.S., the CFTC begins public hearings Tuesday to determine whether to limit speculative investments in commodities. Byron Dorgan, a North Dakota Democrat, has called on the CFTC to curb "oil speculators looking for a quick buck at the expense of American consumers."

[CME Head] Craig Donohue, said: "We are deeply concerned that inappropriate regulation of these markets will cause market participants to move to dark pools and other unregulated markets, causing irrevocable harm to the entire U.S. economy."

Last year, CFTC Chief Economist Jeffrey Harris told a House Agriculture subcommittee: "The economic data shows that overall commodity price levels, including agriculture commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand." Mr. Harris didn't return a call to comment.

The acting CFTC chairman at the time, Bush-appointee Walter Lukken, told the House Agriculture committee that CFTC's economists "did not find direct evidence that speculation was driving up prices." Mr. Lukken, now an executive at the New York Stock Exchange, declined to comment.

U.K.'s Financial Services Authority has found no evidence that speculators are behind big oil-price swings. The FSA doesn't believe that limiting the size of trading positions would be "beneficial" for the market.

Let's drop the pretense and the trousers.

2009-07-21T09:21:00.001-07:00

Apparently the firms that were able to quickly repay the TARP money, with 23% interest to the taxpayers, and immediately turn a profit are not to be praised. Indeed, they are villains of the highest order. Their crime is that they dared to succeed without the government's help and oversight. In fact, those unbridled rapscallions couldn't wait to shake Geithner off the saddle and spit Obama's bit from their foaming mouths.
Naturally, Obama is upset that there's an important sector of the economy he doesn't have full control over - so it's important we quickly pass reform to nationalize everyone, regardless of their financial condition. At least he's finally being forthright about his intentions.

clipped from www.pbs.org

JIM LEHRER: Speaking of the economy, do you share the concern and growing anger by some people over the fact that these big Wall Street banks are suddenly making these huge profits while the unemployment rate continues to go up, foreclosures continue to rise, all kinds of other bad things are happening to individual Americans on the economy.

PRESIDENT OBAMA: The problem that I've seen ... is you don't get a sense that folks on Wall Street feel any remorse for having taken all these risks; you don't get a sense that there's been a change of culture and behavior as a consequence of what has happened.

Now, there are some companies, like Goldman Sachs, that have paid the money back and that means that we don't have the same kind of levers on them that we might have. And that's why I think it's important to pass this broader financial regulatory reform package.

Make no bones about it, I am pushing hard.

P.S. If you don't want firms to take irresponsible risks, then maybe you shouldn't let lobbyists tattoo "2Big2Fail" on the back of every lawmaker's skull.

The SEC Puts Family First

2009-07-02T10:53:00.000-07:00

The world's most inept regulator may have had more motives than mere stupidity for ignoring the glaring Madoff fraud.
Aside from Markopolous' clear evidence against Madoff, that he spelled out in a way that even community college JDs and analysts at the SEC could understand, their own lawyer found suspiciously mismatched trades and inconsistencies in strategies. Her boss told her to make like Helen Keller, however, because it would create a few awkward moments at his upcoming wedding. I wonder if he'll be kind enough to offer his homeless aunt a couch to crash on.

clipped from www.finalternatives.com

A lawyer in the SEC’s Office of Compliance Inspections and Examinations, assigned to look into Madoff’s relationship with hedge funds, told her supervisor that information provided by the now-convicted Ponzi schemer didn’t add up.

Walker-Lightfoot’s investigation uncovered a slew of inconsistencies in documents and filings from Madoff.

She brought the matter to the attention of her supervisors, one of whom would go on to marry Madoff’s niece.

He then told Walker-Lightfoot to hand her Madoff findings over to another SEC lawyer; shortly thereafter, the material was boxed for transfer.

Captain Morgan shows the Somalian Pirates how it's done

2009-06-26T14:53:00.001-07:00

While the amateur Somalians are busy raiding rich tourists and cargo ships, Captain Morgan knows that far bigger booty lies in the pockets of American politicians, not just because they're fat. They're stupid too.

clipped from www.bloomberg.com

Lawmakers and the public are just now discovering some of the curious subsidies tucked into TARP.

Governor John deJongh Jr. agreed to give London-based Diageo Plc billions of dollars in tax incentives to move its production of Captain Morgan rum from one U.S. island -- Puerto Rico -- to another, namely St. Croix.

The Diageo deal started shortly after deJongh took office in 2007. The governor says the company contacted him to say it planned to leave Puerto Rico after having decided the U.S.V.I.
might be a better location to produce Captain Morgan. [as in they were already planning to move]

The U.S.V.I. will give subsidies representing as much as 44.5 percent of tax revenue to Diageo.

Diageo also qualifies for additional tax incentives, reducing its U.S.V.I. tax liabilities to as low as 3.5 percent, from 35 percent.

The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company.

Diageo, which had a stock market value of 21 billion pounds ($35 billion) as of June 8, reported net sales of 5.07 billion British pounds in 2008. Revenue from selling rum accounted for 5 percent of Diageo’s income. [do the math on the value of the subsidy relative to product revenue on this one] Still, Captain Morgan, named for Henry Morgan, the 17th-century Jamaican privateer, is a major driver of earnings for Diageo, spokeswoman Zsoka McDonald says. [well, it is now!]

A guesstimate is not a lie, just bullshit

2009-06-24T17:30:00.001-07:00

To quell concerns of constituents that the stimulus plan will do nothing but enslave future generations to foreign creditors and inflation the Administration has enlisted the help of the stimulus recipients (the needy greedy governors) by asking them to round up their guesstimates of how many jobs Federal money created.
Good thing we have plenty of bored economists and statisticians to point out the inevitable inaccuracies in employment statistics that will result from government clerks who can barely flip burgers at Mickey D's attempting to cook the books.

clipped from online.wsj.com

President Barack Obama had promised that the stimulus plan would save or create 3.5 million jobs. Republicans have criticized the plan and the reliability of the administration's numbers.

The latest Wall Street Journal/NBC poll suggests growing public doubts, with 39% of those surveyed saying the stimulus is a "bad idea," up from 27% in January.

Meanwhile, some state officials worried about how they were supposed to count jobs credited to the stimulus. Now, the White House Office of Management and Budget has given states guidance calming these concerns.

Recipients won't be asked to grapple with complicated estimates, he added. Instead, they may use their best guess whether a job would have been created or saved in the absence of a recovery plan, and to not count it if they are uncertain.

Philip Mattera, research director for the economic development research group Good Jobs First, said the method appeared to be "a bit impressionistic" and presented pitfalls.

Soros confuses CDS for Puts

2009-06-12T18:00:00.001-07:00

The apparently attrocious payout scheme of a CDS that Soros illustrates is remarkably similar to (as in exactly the same as) that of a vanilla Put option. Should those be outlawed as well?
There is no doubt option volume has a "reflexive" effect on the underlying stocks as well. The reason for this, however (and Soros even points this out himself), is because dumb money eventually follows smart money and smart money likes smart instruments (derivatives) that they can tailor precisely to their views on any particular aspect of a firm. The fact that professionals are expressing their views (in CDS' case on "adverse developments" affecting an issuers' credit rating) only leads to greater market efficiency and quicker fair price discovery.
Companies don't fail because evil speculators shorted/wrote puts on their stock or bought protection on their bonds. They fail because their management fucked up.

clipped from www.guardian.co.uk

"CDS are instruments of destruction which ought to be outlawed," Soros told a meeting of the Institute of International Finance.

Going short on bonds by purchasing a CDS contract carried limited risk but almost unlimited profit potential. By contrast, selling CDSs offered limited profit and practically unlimited risk, Soros said.

Soros said: "People buy a CDS not because they expect an eventual default but because they expect them to appreciate in response to adverse developments."

"It's like buying life insurance on someone else's life and owning a license to kill," he concluded.

He said derivatives should be standardised and saw no case for custom-made derivatives, which he said only increased the profit margins of the financiers who tailored them.

Soros' criticism echoes fellow investor Warren Buffet's description of derivatives in 2003 as "financial weapons of mass destruction".

Rob the Rich: Forced Charity

2009-06-08T17:19:00.001-07:00

Yes We Can... fund universal healthcare by taxing the very people who have no need for it. The bourgeoisie have squeezed the juices of the proletariat with their mighty kulak to quench their unpatriotic greed long enough! Now we shall drain the very marrow from their spines (and harvest the stem cells therein)!
We’ll hit them hard on their mortgages. Sure, we're disincentivizing the people who can actually afford to buy a house and create upward momentum in the housing market, thereby generating positive equity for every homeowner organically. Homeowners facing foreclosure and looking for a handout are one of our strongest constituencies, why would we not want to grow it?
We'll cap their investment gains. Markets are the engine of the capitalist machine. We want to keep them going at precisely our chosen speed limit, and we are pouring billions into the enforcement of our arbitrary laws. Of course we see no need to disband the SEC, their peccadilloes, like ignoring evidence of Madoff's scam, pale in comparison to their ability to choke vehement short sellers and regulate other speculators out of existence.
We’ll decide how much the rich give to charity too. The only worthwhile charity is the one the government deems necessary: funding the socialist welfare state.
Oh, and just to make sure that they don't keep trying to persevere and prosper despite the shackles we have put on them we will change tax code so their estate goes to the government after they die. Bourgeoisie progeny can get in the bread line with everyone else.

clipped from www.bloomberg.com

Democrats Weigh Health Mandate as Obama Urges Taxing Wealthy

The president is trying to avoid broad-based levies such as a Senate proposal to tax some employer-provided health benefits Axelrod said. Instead he is urging lawmakers to reconsider limiting all tax deductions for Americans in the highest tax brackets.

Obama is “mindful” about how “ordinary Americans are able to foot the bills.”

Obama’s own proposal would set a 28 percent cap on tax deductions for items such as mortgage interest, investment expenses and charitable gifts

Obama also proposes new taxes on securities dealers and life insurers, and to raise revenue by prohibiting certain estate-planning techniques.

The plan would place new restrictions on private insurers, including a bar on excluding coverage for those with “pre-existing conditions.”

The effort to overhaul health-care would affect a sector that makes up 17 percent of the U.S. economy.

Expect the USD IRS market to explode...

2009-06-08T10:22:00.001-07:00

...but don't play taps for the USD just yet.
First of all, the CCB doesn't speak for China in any official capacity (like the PBC does), and secondly Shuqing's intent in these remarks is to strengthen the Yuan's global authority, rather than hedge against US' looming inflation risk. Of course Xiaochuan and Medvedev are arguing precisely this point - the fundamental weakness and instability of America's currency due to the country's tremendous leverage. That is why they want another currency, or most likely a basket like SDR, to replace the USD. All signs point to this eventually happening, but the Dollar's demise will be a painful, political, and most importantly lengthy process (of course no political process is ever efficient, so that's a moot point).

That being said,the USD is going to keep depreciating, with a few bounces in between, as America has little alternative to printing more greenbacks. Well you know, aside from fiscal responsibility anchoring free-market capitalism.

clipped from www.telegraph.co.uk

The head of China's second-largest bank has said the United States government should start issuing bonds in yuan, rather than dollars, in the latest indication of the increasing importance of the Chinese currency.

Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB),
also said he is exploring the possibility of issuing loans to trading companies in yuan, allowing Chinese and foreign companies to settle their bills in yuan rather than in dollars.

Mr Guo said the issuing of yuan bonds in Hong Kong and Shanghai would help to develop the debt markets in China and promote the yuan as a major international currency.

Two months ago, before the G20 meeting in London, Zhou Xiaochuan, the head of the People's Bank of China, the central bank, published a personal paper proposing to replace the dollar as the international reserve currency. His call came after Wen Jiabao, the Chinese premier, asked the US to guarantee the safety of China's huge pile of US debt.

Welcome to the bandwagon, Bill.

2009-05-22T09:06:00.001-07:00

Bil Gross believes that the US will lose its AAA rating within 3-4 years, something I said when the details of TARP first emerged. Of course the credit rating agencies will be a bit scared to eradicate the concept of "risk free" as we know it, but like Mr. PIMCO said - the downgrade will be priced in regardless of what the ratings are on paper.
Jay-Z and Giselle were too quick to switch to Euros in 2007 (unless they cashed out between April and July of 2008), but now might be a good time to consider what currency, if any, you want to hold in your bank account. Barrels of oil and gold bars might not fit in a wallet, but they won't evaporate either.
Note: While I think Oil's run-up is fully merited, I would take some profit now and leave it on the sidelines until an inevitable dip that leads to another buying opportunity. The curve is still contango, but a lot less steep.

clipped from ftalphaville.ft.com

Bill Gross, manager of the world’s biggest bond fund, warned on Thursday the US was “going the way of the UK” and will eventually lose its top AAA credit rating - a fear that had already spooked financial markets on Thursday and could keep the dollar, stocks and bonds under heavy selling pressure, reports Reuters. The US will face a downgrade in “at least three to four years, if that, but the market will recognise the problems before the rating services — just like it did today,” said Gross, co-chief investment officer of Pimco and manager of the Pimco Total Return Fund, which has $154bn in assets.

clipped from www.usnews.com

Vive La France?

2009-05-21T09:41:00.001-07:00

I love vacations, and if I can stimulate the private aviation, lodging and retail industry while enjoying my just reward then I'm all for it. What I'm not for is the government getting its nose even deeper into the pockets and personnel policies of small (or big) business.

Employees and employers have the right to agree on a contract that makes the most sense to those two parties.

Many employees prefer a higher income to vacation days. Even a kid who failed arithmetic (at least in a European school) can tell you that an employer with limited resources will have to cut gross yearly salaries to account for mandatory vacation. The cut is likely to be more than just the wages for five days’ work, however, when you account for scheduling and training expenses in a small business, where every employee plays an important role and job overlap is minimal. This policy will thus directly hurt the business and benefit nobody, while creating a breadth of negative externalities - including for the government since a business that earns less pays fewer taxes.

clipped from www.politico.com

Rep. Alan Grayson was standing in the middle of Disney World when it hit him: What Americans really need is a week of paid vacation.

So on Thursday, the Florida Democrat will introduce the Paid Vacation Bill.

The idea: More vacation will stimulate the economy through fewer sick days, better productivity and happier employees.

So far, no group has come out in opposition of the bill. Nor has anyone announced opposition to roller coaster rides, cookouts on the beach or salt-water taffy on the boardwalk.

“There’s a reason why Disney World is the happiest place on Earth: The people who go there are on vacation,” said Grayson, a freshman who counts Orlando as part of his home district. “Honestly, as much as I appreciate this job and as much as I enjoy it, the best days of my life are and always have been the days I’m on vacation.”

France currently requires employers to provide 30 days of paid leave.

Didn't see that one coming!

2009-05-20T12:41:00.001-07:00

No, but seriously, like I said when this first broke wind - good luck getting capital from any sane investor without putting a gun to their head (an option I'm sure Rahmbo put on the table).
This, combined with the downright moronic mandated CAFE standards (which will at best lower temperatures by 0.0078 degrees ... in 2100) ensure the destruction of American automakers.
If conspiracy theorists thought Bush was owned by Haliburton, how come nobody is saying that Obama's pockets are lined by Toyota?
On the upside, however, once the government runs out of money (or prints so much of it that the dollar is worthless), the unions will have nobody to turn to for funding their fundamentally inefficient and unsustainable business practices and will become extinct. Too bad they're taking the entire country down with them.

clipped from www.bloomberg.com

Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies

“Anything that involves a large number of jobs or affects a large number of people, you can expect to see a Chrysler redux,” Jerry del Missier, president of Barclays Capital, said in an interview from his New York office. “One of the consequences here is the so-called speculators, people who provide financing, will think twice about getting involved.”

Unions spent $52 million to help elect Obama, which includes $5 million from the United Auto Workers, according to OpenSecrets.org

“People are starting to think ‘This is a very activist administration, even more than we counted on,’” said Martin Fridson, CEO of money manager Fridson Investment Advisors in New York. “If it comes down to the interest of creditors or labor unions, the administration is going to override what you thought you could do.”

Godfather Paulson made banks an offer they couldn't refuse

2009-05-13T15:54:00.001-07:00

This is nothing new to anyone, especially considering what we already knew about the BofA/ML prearranged marriage, but now there's proof that Paulson was a government gangster.

clipped from www.bloomberg.com

Former Treasury Secretary Henry Paulson said nine U.S. banks would have to accept $125 billion in government investments or be forced to by regulators.

“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance”

“Your nine firms represent a significant part of our financial system. Therefore, in our view, you must be central to any solution,” the memo said.

Three and a half hours after the meeting was scheduled to begin, Paulson had obtained the bankers’ signatures on half-page forms along with the handwritten amount of the federal government’s investment, according to the documents. He announced the actions publicly the next day.

“Most Americans are going to be uncomfortable with the government forcing the banks into this arrangement,” said Tom Fitton, president of Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request. “This is, in many ways, thuggery.”

Chrysler's bankrtuptcy undermines America as a Nation of Laws

2009-04-30T16:48:00.001-07:00

Those evil hedge funds, the “small group of speculators” Obama so harshly critiqued for daring to be the Davids to his rampaging Goliath, are otherwise known as Senior Secured Bondholders, as in the creditors first in line to get paid - and they're going to get the shortest end of the stick, right up their butt.

"A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none,” Obama said.

Right, like the sacrifices that the UAW is making - giving up a few benefits and taking a small pay cut in exchange for majority control of the automakers (which will later on let them adjust their salaries to whatever they wish).

Some of the hedge funds, Obama said, demanded returns twice as high as other lenders were getting.

Senior secured bondholders are supposed to get the most money, in fact they're supposed to get paid out before anyone else gets a penny! The fact that this populist message resonates so loudly across the country speaks only to the citizens' legal illiteracy.

Does Obama’s team have even the modicum of rudimentary intelligence to recognize that in continuing to blatantly ignore and break our country’s laws they are ensuring that nobody in their right mind will ever want to invest in these companies ever again? How do they expect banks to shore up private capital or for programs like PPIP to work? The government's need for private sector help is only going to grow as it spirals further into debt, so it would be wise to cease alienating the investor class and start making real concessions and working together to save the economy.

Please read the full statement at blogs.wsj.com

As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

To facilitate Chrysler’s rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more.

Our offer has been flatly rejected or ignored. The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

MS may spin off Quant Desk

2009-04-24T10:34:00.001-07:00

Remember how everyone with half a brain said imposing pay restrictions on TARP banks will cause a massive talent drain? At least MS is smart enough to try and keep a portion of the profits by spinning off its top prop desk. Still, cutting out a lion's share of profits will certainly hurt the bank's ability to repay taxpayers and invariably will lead to a weaker bank down the road.
Unfortunately all that Congress cares about is that evil traders can make billions without contributing nothing to society while our amazing public school teachers and autoworkers, who've given this country so much, are out begging on the streets and turning tricks. Of course those traders did make a ton more money for the union pension funds than they ever made for themselves, but hey that's not the key point here.

clipped from www.finalternatives.com

Morgan Stanley may transform its biggest proprietary trading desk into a hedge fund as a way to sidestep new government restrictions on pay and hiring.

PDT has had only one down years since it was launched in 1993, and has earned Morgan Stanley some $6.5 billion in pretax income over that span.

PDT’s top traders are reportedly concerned about pay restrictions imposed by the federal government on firms receiving bailout money, as well as those on hiring foreign workers. Any move to spin the group off could be an effort by Morgan Stanley to hold onto talent that might otherwise leave to start their own hedge funds, or to join existing hedge fund shops.

I smell a Rattner

2009-04-20T07:53:00.001-07:00

And now we have another money scandal from our hopeful Administration. This time it's involving the poor taste and poor cover up skills of the new Car Czar. I guess if you've got some skeletons in your closet it's better to do community service for Obama than do time in the can.

clipped from online.wsj.com

President Obama's auto fix-it man, Steven Rattner, is in the news as one of the Wall Street financiers hit up for big money as part of New York state's unfolding pension-kickback scandal.

This is the same political class that has been blaming banks for "greed" in the financial crisis. The pension fund scandal exposes the myth of the superior virtue of the public and nonprofit worlds. Greed is universal. And the opportunity for corruption is enormous when political discretion is tied to vast sums of public money.

In Mr. Rattner's case, SEC documents say he met with the brother of Mr. Loglisci to discuss acquiring the DVD rights to "Chooch," a low-budget movie that Mr. Loglisci and his brothers were producing. Quadrangle, through an affiliate called GT Brands, agreed to acquire the rights for about $89,000. Several weeks later, Mr. Loglisci told Mr. Rattner that Quadrangle would be getting a $100 million investment from the pension fund.

What? You thought communism didn't come with a police state?

2009-04-09T10:21:00.001-07:00

This was one Bush program I was completely against from the start, as were most people who grew up in a totalitarian regime where secret police silenced all dissent, and used their power to usurp the civilian population's property and lives as they pleased. Before he was elected I naively thought that one upside to Obama will be that this case will be thrown out quikcer than my tax dollars in bailing out AIG. Apparently not. We can spy on our own innocent civilians all we want, but there is no “war on terror” and Gitmo residents will get taken care of by the taxpayers for life. I guess it's Change you better believe in, because we know where you are and what you're saying.

clipped from www.eff.org

Friday evening, in a motion to dismiss Jewel v. NSA, EFF's litigation against the National Security Agency for the warrantless wiretapping of countless Americans, the Obama Administration's made two deeply troubling arguments.

First, they argued, exactly as the Bush Administration did on countless occasions, that the state secrets privilege requires the court to dismiss the issue out of hand. They argue that simply allowing the case to continue "would cause exceptionally grave harm to national security."

As a candidate, Senator Obama lamented that the Bush Administration "invoked a legal tool known as the 'state secrets' privilege more than any other previous administration to get cases thrown out of civil court."

The Department Of Justice's second argument that is the most pernicious. The DOJ claims that the U.S. Government is completely immune from litigation for illegal spying — that the Government can never be sued for surveillance that violates federal privacy statutes.

This is a radical assertion that is utterly unprecedented. No one — not the White House, not the Justice Department, not any member of Congress, and not the Bush Administration — has ever interpreted the law this way.
Again, the gulf between Candidate Obama and President Obama is striking. As a candidate, Obama ran promising a new era of government transparency and accountability, an end to the Bush DOJ's radical theories of executive power, and reform of the PATRIOT Act. But, this week, Obama's own Department Of Justice has argued that, under the PATRIOT Act, the government shall be entirely unaccountable for surveilling Americans in violation of its own laws.

Jake DeSantis is a Real American

2009-03-25T08:26:00.001-07:00

We need more people like Jake right now. He's not a hero, but true American in the classical Federalist sense. These are people who aren’t afraid to look tyranny right in the face and say “Don’t Tread On Me”.

When a government is using outright extortion to get money from its citizens, when banks are forced to accept unwanted capital that comes with retroactive strings manned by a maniacal puppeteer, when debate is condemned by the White House, when succeeding in the American Dream becomes a crime, when the constitution is spat on by every half-wit in Washington - that is when we need to look back upon our Founding Fathers for guidance and resist oppression.

"Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master." - George Washington

Please read the entire letter here.

clipped from www.nytimes.com

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G.

Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

Andew "Consigliere" Cumo makes AIG an offer they can't refuse

2009-03-24T17:28:00.001-07:00

Seems like we've gone from mob rule to outright Mafia politics.

extortion (plural extortions)

the practice of extorting money or other property, especially by a public official, by the use of threats
Extortion, outwresting, or exaction is a criminal offense, which occurs, when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Refraining from doing harm is sometimes euphemistically called protection. Extortion is commonly practiced by organized crime groups and the US Government.

clipped from online.wsj.com

A memo sent by an American International Group Inc. executive appears to advise employees in the company's Financial Products division that their willingness to give back controversial bonuses would spare them from being publicly identified by authorities.

"To the extent that we meet certain participation targets, it is not expected that the names would be released, at all," said the memo.

New York Attorney General Andrew Cuomo said last week he had received a list of employees that received retention bonuses at the AIG unit but wouldn't make the names public immediately.

Late Monday, Mr. Cuomo said 15 of the top 20 AIG bonus recipients had agreed to give back their payments, amounting to more than $30 million in cash. The state attorney general said he's aiming to recoup the 47% of the total bonus pool received by American employees. He also said he sees no public interest in publicly releasing the names of people who return their bonuses.

Brace for Impact

2009-03-18T17:06:00.000-07:00

This is redistribution of wealth – plain and simple. It’s coming with tomorrow’s vote.
First they made healthy banks take bailout money, which I have been saying since the beginning was designed to nationalize them through retroactive amendments, and now they are plowing ahead at full speed – their wheels greased by the minor incident at AIG (the $165mm of bonuses in question is 0.1% of the $173bn that the government gave the firm!!!). Stealing the bonus of every bank employee in order to punish these select few individuals is like carpet-bombing an entire village just to kill one low-level insurgent who could never impact the outcome of the war.
Couple this with the guillotine blade of stagflation rising ever higher over our heads and it is becoming clearer by the day that the American way as we know it is coming to an end.
I don’t really know what else to say, except get ready to fight for your right to life, liberty and the pursuit of happiness. Washington will do everything in its power to take it away and will feed whatever senseless propaganda is required to achieve this purpose to the eager mouths of its constituents, blinded by rage.

March 18 (Bloomberg) -- U.S. House Democrats plan a vote tomorrow on a measure imposing a 90 percent tax on executive bonuses paid by American International Group Inc. and other companies getting more than $5 billion in federal bailout funds. “I expect it to pass in overwhelmingly bipartisan fashion,” Majority Leader Steny Hoyer of Maryland told reporters today in Washington. House Speaker Nancy Pelosi of California said, “The American people are very upset about what they’ve heard about bonuses.”

The legislation would apply to bonuses paid to employees at companies such as Citigroup Inc. and Fannie Mae and Freddie Mac, said Ways and Means Committee Chairman Charles Rangel of New York.

The measure is the first legislative response to a political furor that erupted after insurer AIG, which got taxpayer-funded bailouts totaling $173 billion, paid $165 million in bonuses last week to 4,600 employees. Many receiving bonuses are in AIG’s financial products unit, the credit-default swaps subsidiary whose losses pushed the insurer to the brink of bankruptcy in September.

The measure was being drafted today as AIG Chief Executive Officer Edward Liddy told a House Financial Services subcommittee that he asked employees who got bonuses over $100,000 to repay half.

The 90 percent tax would apply to people with overall income exceeding $250,000, including bonuses. The tax would apply to bonus payments made after Dec. 31, 2008, and it would cease when the U.S. government’s investment in the company fell below $5 billion.

The Senate is readying a separate measure that would impose a 70 percent excise tax on the bonuses, split between the company and employee.

Congress is acting after Treasury Secretary Timothy Geithner said in a letter to lawmakers last night that his department’s lawyers determined it would be “legally difficult” to prevent AIG from paying the bonuses because they were required by contracts.

“We passed a recovery act, we did not pass a license to steal,” New York Representative Steve Israel, a Democrat, said at the news conference. “The middle class will no longer subsidize pay for failure.”

Asked how lawmakers reached the 90 percent figure, Rangel said, “We figure the local and state governments will take care of the other 10 percent.”

Sanford Shot Down

2009-03-16T11:15:00.001-07:00

Yo...this be the realest shit you'll ever quote.

My president is black, my Lambo’s blue.
The economy is red, and he ain’t got a clue.
Got a white hustler, failing the Treasury.
Meanwhile Obama is vacationing leisurely.

Buying rocks for his baby-mama,
Dropping some dough.
While the world’s got drama,
He’s sipping Bordeaux.

Sanfrod spittin’ straight dope,
Trying to get through.
But how can we have hope
When there’s only one world-view?

Change you can believe in?
Why the rhetoric so thick then?
And if discourse is a sin,
Is it Democracy we're in?

clipped from www.google.com

Sanford last week wrote Obama and asked for a waiver that would let the state pay down debt during the next two years with $700 million instead of using it to create jobs and avoid deep program cuts.

The Obama administration has rejected South Carolina Gov. Mark Sanford's request.

The DNC is airing an ad in South Carolina that says Sanford is putting politics ahead of health care, jobs and schools by trying to turn down part of the federal stimulus money.

The governor said in a statement it was "disturbing" the ad was launched before the White House had responded. Sanford said the ad is at odds with Obama's campaign promises of ending politics as usual.

"It's in that spirit that I'd respectfully ask him to end this ad, as it shatters the idea of change he so well articulated this fall — and to ask his Democratic National Committee to put an end to this mudslinging and get back to an honest debate about the future of our country," Sanford said.
But the future of that money may not even be for Sanford to decide. Last week, state Sen. Hugh Leatherman, a Republican, introduced a resolution that would allow the state legislators to spend the cash despite Sanford's opposition.

We Fly High

2009-03-10T13:45:00.001-07:00

Pelosi's more-equal-than-thou hypocrisy is as unsurprising as this story not getting any more media attention. Still, one would think she'd at least have the decency downgrade to a Learjet or Citation for weekend jaunts as a show of solidarity.

clipped from www.foxnews.com

House Speaker Nancy Pelosi has repeatedly requested military aircraft to shuttle her and her colleagues and family around the country. Pelosi was notorious for making special demands for high-end aircraft, lodging last-minute cancellations, and racking up additional expenses for the military.

In one e-mail, aide Kay King complained to the military that they had not made available
any aircraft the House speaker wanted for Memorial Day recess. "It is my understanding there are NO G5s available for the House during the Memorial Day recess. This is totally unacceptable ... The Speaker will want to know where the planes are," King wrote.

In another, when told a certain type of aircraft would not be available, King wrote: "This is
not good news, and we will have some very disappointed folks, as well as a very upset Speaker." Pelosi's office has not yet responded to requests for comment.

Scholes' other BS model

2009-03-06T15:15:00.001-08:00

Old man Scholes wants to "blow up" the entire $531 trillion derivative market as a way to "prevent crisis". While I'm all for market-to-market over mark-to-model this plan is like curing a brain tumor by shooting yourself in the head. It would cause a complete collapse of the global economy. Of course this plan is just crazy enough for Washington to consider it. Oh, and that pricing model you spent years developing to capture arbitrage, yeah well we're nationalizing that bad boy too.

clipped from www.bloomberg.com

Myron Scholes, the Nobel prize-
winning economist who helped invent a model for pricing options,
said regulators need to “blow up or burn” over-the-counter
derivative trading markets to help solve the financial crisis.

The “solution is really to blow up or burn the OTC market,
the CDSs and swaps and structured products,

“One way to
do that, through the auspices of regulators or the banking
commissioners, is to try to close all contracts at mid-market
prices.”

“Take the pricing mechanism from the desks in banks, which
have made a huge amount of profits over the last number of
years, and facilitate price discovery,” Scholes said.

A total of $531 trillion in outstanding derivatives
contracts traded over-the-counter as of June.

Scholes was a partner in Long-Term Capital Management LP,
the hedge fund whose $4 billion loss in 1998 set off a near-
panic in financial markets and prompted the Federal Reserve to
orchestrate a bailout by 14 lenders.

It's not just the bankers...

2009-03-04T17:22:00.001-08:00

Although I've been a fan of the Governator, this is rather stupid. I understand that he probably already checked out mentally and is thinking about how he'll repopulate his stable after the hippies made him get rid of all those Hummers, but this is analogous to Jimmy Cayne smoking dope at a bridge tourney while Bear burned, and Dick Fuld shopping at Hermes after Lehman went bankrupt. Not that we should hold politicians to higher standards than shareholders hold executives (in fact, just holding them to equal standards of accountability and intelligence would be great progress) but this is an absurd move. You don't see Bobby Jindal jetting to India for some curry, and his state has a better credit rating.

clipped from www.luxist.com

California Governor Arnold Schwarzenegger made a surprise appearance at the Geneva Motor Show today, where he checked out a $230,000 Bentley Continental GTC Speed.

Accompanied by Bentley CEO Franz-Josef Paefgen, Schwarzenegger eyed all the Bentleys on display but seemed to prefer the GTC Speed, which he sat in and fondled lovingly.

He has been in Europe this week attending the CeBIT 2009 in Hanover, Germany, billed as the world's largest technology trade fair for digital business solutions and information and communications technology. California is the first U.S. state to partner with CeBIT.

Private Sector: 1 Washington: -75,000,000,000

2009-03-04T11:27:00.001-08:00

Doesn't take a genius to figure out that reducing a borrower's principal closer to market value is more effective at keeping them in their home long term than a temporary payment cut, but the USS Failboat and its crew of merry morons are too intent on steering us into an iceberg. The sheer idiocy of our government is only matched by our administration's undeserved arrogance.

clipped from www.bloomberg.com

March 4 (Bloomberg) -- Patricia Greenberg’s townhouse in Irvine, California, was losing about $10,000 a month in value when she received a letter in February 2008 that looked too good
to be true: An investor was offering to cut her $472,000 mortgage by 26 percent and her monthly payment by a third.

It was no ruse. New York hedge fund manager Ralph DellaCamera Jr. says he’d purchased the mortgage for 60 cents on the dollar and forced the originator, MLSG Home Loans of Reno, Nevada, to eat the loss. Protecting his investment, DellaCamera lowered Greenberg’s debt to keep her in the home.

DellaCamera reduced Greenberg’s mortgage by $121,300 and her interest rate to a fixed 6.375 percent from an adjustable 9.629 percent. The changes allowed DellaCamera to lock in a $65,900 profit [holy crap, capitalism works! and no phantom Keynsian multipliers anywhere!]. Greenberg now pays $2,400 a month instead of $3,800 and plows some of her savings into upgrading the Cape Cod-style residence [i.e. stimulating the economy].

One in five borrowers in the $10.5 trillion U.S. mortgage market owes more than their property is worth, but just one in 10 have received the principal reductions that research demonstrates is more effective at preventing defaults than the temporary payment reductions promoted by banks and the federal government.

One reason banks resist lowering borrowers’ principal is that doing so could threaten their solvency. In the worst slump since the Great Depression, the banks’ unrealized losses exceed their capital cushions by $400 billion, according to Nouriel Roubini, a professor of economics at New York University’s Leonard N. Stern School of business. [so let's keep propping them up at the taxpayer's expense and pray that this problem will magically dissappear]

“If your collateral is worth significantly less than the loan, it may be better to compromise and get half a loaf than hold out for the whole loaf and get nothing,” says David Dietze, president of Point View Financial Services Inc., an investment adviser based in Summit, New Jersey. [why would I take half a loaf now when I can milk the government so much I'll be too bloated to even eat a crumb!]
“The banks need to flush out all the bad assets, says Louis Amaya, 44, NAD’s chief investment officer. “Let guys like us buy them, service them, reliquefy them into good loans.” The process will “put a lot of them out of business,” Amaya says. “There’s going to be some hard, short-term pain that needs to happen in order for us to start rebounding.” [wait, now I'm not even getting half a loaf for running my business into the ground?! American people don't want pain, they want unicorns shitting skittles and they want them now! Hedge funds are eeeevil! Don't listen to their logic, they're not even government regulated!]
President Barack Obama announced a $75 billion rescue plan Feb. 18 that promotes more affordable monthly payments for as many as 9 million borrowers through government-subsidized interest rates and extended loan terms up to 40 years. While buying time for the financial system to stabilize and the economy to recover, the government program steers clear of restoring homeowners’ lost equity, a more effective method of stemming foreclosures, according to research by Credit Suisse Group AG, Goldman Sachs Group Inc.

Bank resistance to more aggressive action was reflected in a December study by the Comptroller of the Currency, a federal banking regulator. After six months, more than 55 percent of the loans modified last year re-defaulted, that report showed. By comparison, 28 percent of homeowners whose modifications trimmed their principal by a fifth or more were late after six months.

The Obama administration’s failure to close the negative- equity gap means that its plan “will likely join the dud parade of federal rescues,” says John Kiff, an International Monetary Fund economist in Washington. [Don't listen to the IMF! They're only concerned with helping the rich get richer! All I'm trying to do here is keep my poor bank from going bankrupt! Won't anyone think of the bankers?!]

Washington must be reading my blog...

2009-02-17T17:56:00.001-08:00

...and just stealing the metaphors instead of heeding its advice. I told you - the banks will be nationalized. This has been part of the Master Plan from the start.

clipped from www.ft.com

Nationalisation, long regarded in Washington as a folly of Europeans, is gaining rapid ground among US opinion-formers

Lindsey Graham, a Republican senator for South Carolina, said that many of his colleagues, including John McCain, the defeated presidential candidate, agreed with his view that nationalisation of some banks should be “on the table”.

“You should not get caught up on a word [nationalisation],” he told the Financial Times in an interview. “I would argue that we cannot be ideologically a little bit pregnant."

Barack Obama has recently moved more towards what he calls the “Swedish model”:

In the early 1990s, Sweden nationalised its banking sector then auctioned banks, having cleaned up their balance sheets. Mr Obama made it clear last week that he favoured this model over the piecemeal approach taken in Japan.
Senior administration officials acknowledge that the financial rescue plan unveiled last week could result in the temporary nationalisation of some weak banks.

You can't be half pregnant

2009-02-06T09:15:00.001-08:00

Why would the government want to convert their high-dividend yielding (and theoretically profitable, as they're financed with low-yield debt) preferred nonvoting shares in the banks into voting common stock?
At least Goldman wised up and is pulling out of this TRAP as quickly as they can. I can only foolishly hope that the rest of the banks who were forced to accept government money by Paulson and Bernanke will follow suit quickly, lest they become just another foot solider of the government forced into sodomizing itself at the whim of deranged puppetmasters who refuse to learn from history (or even yesterday's news) and care only about elevating their populist pulpit, even if they have to build it with soiled paper bricks and toxic mortar (see the Fannie Mae article from yeserday).

clipped from www.reuters.com

Policymakers are considering an idea that the government change its existing holdings in the banks, which have taken the form of preferred shares -- non-voting stock that carries a fixed dividend -- into convertible preferred shares that could be converted into common stock, the paper said.

Under this proposal, the shares would automatically convert into common equity if there was a decline in the bank's health, as measured by its tangible equity ratio, for example, the paper reported.

The Obama administration is considering an expansion of the Federal Reserve's consumer-lending facility, known as the Term Asset-Backed-Securities Loan Facility (TALF) that could potentially buy up toxic assets clogging the system, the Wall Street Journal said, citing people familiar with the plans.

First Socialist National Bank

2009-02-04T10:09:00.001-08:00

I could care less about executive compensation, and quite frankly most CEOs should be taken out back and shot by the shareholders for selling their companies out to the government by accepting TARP money, especially when not every bank needed it – but every big bank was required to take it by Paulson and Bernanke on that fateful weekend when capitalism got its first fatal stab in the back.

Here’s the thing that absolutely nobody in Washington or Main Street understands: virtually all of those bonuses were paid to the employees who earned them because of their performance. The CEOs did not take a dime (nor should they have done anything but write a suicide note). While it’s great to rouse the peons with claims that banks paid employees millions “just for showing up” and “pushing paper around” that has never been the case. It’s true that an employee who consistently produced for many years, but then had an off year, would still be paid a [much smaller] bonus – because the bank understood correctly that it’s likely that this employee will generate revenue again, and did not want him to quit. There are virtually no cases, however, where an employee who routinely lost money for the bank was retained, let alone paid a bonus (case in point – almost everyone on mortgage desks was let go way before anyone started talking about a bank bailout). Those who make the big bucks have quotas, if you fail to meet them for 2 or 3 years you’re out on your ass. This is how this business works.

Furthermore, and most importantly, a bonus is a percentage of revenue that you brought the bank. That is – these people are getting a fraction of what they directly contributed to the bank’s bottom line. The best traders and their teams can leave and make money elsewhere, and in fact there has been a massive outpouring of all the best talent from sell-side shops in 2008. This will, by grade school logic, result in far greater losses for the banks in the future. On the other hand, retaining an employee who on average brings in $10mm/year revenue for $2mm/year bonus isn’t a difficult choice in a rational world. Arbitrarily limiting that person’s comp just because some secretary in Nebraska who can't pay her mortgage and has 8 kids doesn’t make that much in her lifetime is a tenet of socialism.People in a capitalist society get paid based on what they earn, not based on what they need, or what the government thinks they should earn.

clipped from www.bloomberg.com

President Barack Obama called bonus payouts at banks getting rescue funds “shameful” as he and Treasury Secretary Timothy Geithner announced the government will require financial companies getting aid in the future to cap compensation of top officials at $500,000 a year.

A New York state comptroller report that $18.4 billion in bonuses were paid out to
Wall Street executives and employees as the U.S. sank into a recession further inflamed Americans.

“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate
it as president,” Obama said.

On Wall Street, there is concern that compensation curbs would hinder a company’s ability to attract top-notch employees, and that would lead to a talent drain, Meredith Whitney, an analyst at Oppenheimer & Co., said on Bloomberg Television.

“If you cap compensation, the best and the brightest are still going to figure out a way to make money and it may not be on Wall Street, when those minds are needed most,” Whitney said.

William Cohan, a former investment banker at Lazard Ltd. and JPMorgan and author of “The Last Tycoons” about Lazard, disputed that notion.“What do they do? They push paper around,” Cohan said, “Where else can you get paid $500,000 to do that?”
Senator Claire McCaskill, said small-business owners are calling the bonuses “obscene” and other lawmakers say they are getting angry calls and mail from constituents on the subject. McCaskill said today the Obama plan is in line with what lawmakers are seeking in an effort to change “the arrogant, greedy culture that created this mess in the first place.”

NY Post Can't Count the Fraud

2009-01-20T15:50:00.001-08:00

How can Uncle Bernie's distraught nephew of 50 years old have built a house with his wife in 1971 when he was 13 years old?

clipped from www.nypost.com

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.
"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.

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.

pwned

2008-09-23T10:27:00.000-07:00

Presented without further commentary:

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

2008-09-16T11:58:00.000-07:00

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

2008-09-16T11:00:00.001-07:00

(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

2008-09-16T09:32:00.000-07:00

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)?

2008-09-12T08:57:00.001-07:00

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

2008-08-27T10:24:00.001-07:00

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

2008-07-24T13:40:00.001-07:00

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

2008-06-17T13:02:00.000-07:00

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):

How do you define speculators?

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?
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?
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.

Isn’t this locking up the free market?

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.
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

2008-05-13T14:42:00.001-07:00

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

2008-03-27T15:49:00.000-07:00

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

2008-02-22T13:25:00.001-08:00

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

2008-02-19T17:14:00.001-08:00

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

2008-02-15T10:49:00.000-08:00

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...

2008-01-29T18:00:00.000-08:00

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

2008-01-09T10:15:00.000-08:00

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.

Communism in NYC

2007-12-06T09:12:00.001-08:00

NYC Commies are giving SF Hippies a run for our honest and hard-earned money.

This has gotten beyond ridiculous and would be comical, except it shows the cretinism of today's youth trying to emulate their hippie parents from the 60s. Not in the sense of trying to take down the evil rich white man or stop a pointless war, but in the sense of rallying for causes they choose not to understand. Protesting against whatever is popular purely for that reason, and thinking they are doing the world a service through their "creativity" and "self-expression".
At least they're not calling Iraqi vets baby killers ...yet (but once PE money dies down from the credit crunch, who knows who they'll turn on next).

clipped from www.nytimes.com

A Movie and Protesters Single Out Henry Kravis

Bells will be ringing, and carolers will be greeting the Upper East Side neighbors of Henry Kravis this morning for a sidewalk screening of the first of a series of short films crusading against private equity firms.

Directed by Robert Greenwald, the film starts by tallying Mr. Kravis’s income: “He made $450 million last year,” the narrator says, “which comes out to $1.3 million per day, or $51,369 per hour every hour of every day.” Then it immediately cuts to an interview with Margaret Konjevod, a nurse. What Mr. Kravis makes in an hour, “that’s what I make in a year, if I’m lucky,” she says.

Today’s protest is the latest indication that the reaction against the wealth created by private equity funds has become part of a ~~populist~~ communist movement.
[You know what we call it when you make everyone’s salary based on need rather than what the free markets deem equilibrium – yes, that’s right, Marxism. You want to really stick it to PE? Tell your pension funds not to invest in them. Sure, you'll forgo all the profits KKR and other firms gives to their investors, but your underdeveloped excuse for a conscience will seem Cristal clear to you while you're drinking 40s out of a dumpster after you retire, pun intended.]

Some industry insiders may blanch at his attempt to simplify, or as he would say, “boil down” his message. In one voiceover, private equity is described as a firm that takes over “public companies using primarily borrowed money.”

“To pay off this debt,” the film says, “they then sell off assets of the companies, fire thousands of workers and radically cut benefits of the remaining employees. It is the same product, in the same building, with the same customers as before.”

Mr. Greenwald said he did not try to interview Mr. Kravis before releasing the film and had not consulted anyone in the industry. He said that he planned to reach out to Mr. Kravis and hoped that he would participate in future productions. He then suggested: “If you don’t participate, the story gets told without you.”
[Right, first you smear people with your own un-researched and invented shit, and then, when they rightly choose not to associate with such skewed scum, you claim they're not "participating" - thus giving you a carte blanche to continue your fecal portrait. Michael Moorre better watch out - Greenwald has figured out your movie-magic secrets.]

Greene on the New Princes

2007-12-04T16:36:00.001-08:00

My friend sent me this article today by the very lucid Robert Greene writing on Machiavelli (as he often does for a living) in the 21st century. I had to add my own two cents. I highly suggest you read the article first, and then my opinions on it.

clipped from www.powerseductionandwar.com

Necessity governs the world.

When you feel necessity biting at your heels, you are moved to respond in some way that is creative. It is either that or die.
I must constantly create challenges for myself, find some way of feeling limited and pressured, never resting on what I have done in the past.

Fortune rewards those who are bold; she is a woman.

When I enter a negotiating situation, I always make sure I feel that I can walk away from an offer.

Some want to rule, others to be ruled.

In Machiavelli's world, people are not victims. Those who suffer under some form of tyranny inevitably have gotten the kind of government they want or deserve. They are unconsciously implicated in the process. No one, in Machiavelli's universe is some passive actor who is acted upon and injured.

Greene elaborates on a principle in his first section that I find absolutely critical in gaining, maintaining and expanding personal success – never feel complacent. If no outward challenges exist then create new ones to maintain your drive. To use the metaphor of a businessman as a shark – if you stop moving forward you die, thus one must find reasons to keep going. The fact that this lucid comparison has such negative connotation in our present society – where children are encouraged to rest on their insignificant laurels, where everyone is “special”, where capitalism is equated to fascism by the ignorant masses, speaks volumes to its laggard nature.

Greene’s discourse on boldness is also poignant, though this negotiating strategy is not novel. In displaying the will to walk away from a deal, a job, a trade, etc. you flex power over whoever sits in front of you. Of course should you find yourself facing another strong-willed individual on the other side of the table he may find this display arrogant, or worse – imminently dangerous to his position and thus seek to undercut you. Having a superior of weaker will than you is thus often useful, so long as you can stay self-motivated.

So far as peasants preferring to be ruled, that’s a sure fact that I’ve observed in depth while growing up in Russia. If more Americans understood this they would be able to see how Putin can govern Russia with a diamond-studded iron fist and still have tremendous support of the people. Ironically, our current complacent culture in America feels that it cannot allow itself to be lead and is thus causing itself tremendous pain and distress – but unwilling to chastise itself rather than its inept leaders and cause change the only way it can occur – through action and pragmatic self-betterment.

Party Like A Rock*

2007-12-04T09:26:00.001-08:00

Seriously people, I can't make this ish up.
If you thought forcing a quant to take estrogen at SAC was the fruit-battiest Wall Street got ...well, just wait till you meet Tiger - the gay go-go dancer.

clipped from www.nytimes.com

A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion [in Palm Beach, FL].

Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

Mr. Ash has a past: he has been arrested at least 11 times on charges ranging from larceny to prostitution; He has been called Mr. Madam because of a past connection he says he had to Heidi Fleiss, the Hollywood Madam [and because he likes going to galas in fancy sequined dresses].

Through her lawyers, Mrs. Tobias refused to comment for this article. In a recent interview with The Palm Beach Post, she said, “I’m broken. I haven’t gone out in six weeks. I’ve been in and out of the hospital. I just pray all day and wonder why people could be so evil.”

[If a socialite didn't go out for six whole weeks - you know it's serious. If she just wanted the money she'd clearly be spending it - and not just on hiding the evidence...]

Mrs. Tobias spent $9,628 to have the pool drained and resurfaced days after her husband died, according to documents filed in an unrelated case.

In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.” One lawyer representing Mrs. Tobias, Gary Dunkin, said he was shocked by the accusation. “In my 25 years practicing law, this is the most reckless allegation I have ever seen,” he said in court.
[Dunkin' has never seen relatives accuse a socialite of murdering her estranged husband for money because he spent most of his 25 years practicing law at Krispy, Dunkin & Happy, which lardly deals only in cases pertaining to deliciousness.]
Mrs. Tobias' [other] lawyers, which include her prior husband [with whom she'll share the "legal fees" paid by the husband's estate if she doesn't win], Jay J. Jacknin [aka Triple J, Jizza Jack, and Jack'n J], have asked the court to put off her depositions, citing her “psychiatric condition”. They said she hired contractors to empty the pool because she was distraught over her husband’s death [not going according to plan].

Mr. Tobias never ran with the titans of Wall Street. He was a small player in an industry where successful managers command billions or even tens of billions of dollars [so you can't even imagine what kinda crazy shit goes down at the Cohen and Simons houses].

Mr. Tobias’s life was apparently as volatile as his investment returns. [Mr. & Mrs. Tobias] secretly frequented a gay bar called Cupids in West Palm Beach, in a strip mall along a main thoroughfare. It was there, according to Mr. Ash, that Mr. Tobias first met Tiger.

“Seth used to come in here back when it was crazy,” said Adiel Hemingway, the longtime manager of Cupids. As a flat-screen television blared hard-core gay pornography, he said that Mr. Tobias often came to the club with his wife. Hemingway took out a picture of Tiger. Tiger is blond and covered with tattoos that look like stripes. “I know exactly who he is, but I’m not telling you,” Mr. Hemingway said.

Things aren't looking good...

2007-11-07T14:29:00.000-08:00

If all the massive financials' writedowns weren't enough we saw the SPX go under its 200-day MACD. I think tomorrow could be really bad, and don't think a good unemployment number is going to save you (actually the only thing that could is some big boys covering shorts or going long if their trigger was the 200 MACD). Get out of FXI, short the SPDRS (and the dollar) and hold on to your golden balls.

Oh no they didn't!

2007-11-06T17:38:00.001-08:00

Bloomberg delivers Jimmy Joint & the Dirty Bears the ultimate smackdown on behalf of Lloyd Blank-too-fine & his Golden Sachs.

clipped from www.bloomberg.com

When Goldman Sachs Group Inc. employees cash their year-end checks, they'll have enough money to buy Bear Stearns Cos.

Goldman, the biggest and most profitable U.S. securities firm, set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of 2007, according to the company's third-quarter earnings report. The stock market values Bear Stearns Cos., the fifth-biggest firm, at $14.7 billion.

While analysts expect Goldman to top last year's profit record, they estimate that Bear Stearns's earnings will drop 27 percent. Goldman's shares have added 12 percent this year while Bear Stearns's are down 37 percent. Bear Stearns Chief Executive Officer James Cayne, 73, has watched the market value of his firm decline more than $10 billion from its February peak.

Bear Stearns, straddled with subprime losses, is rumored to forgo the traditional cash bonus, choosing instead to hotbox its entire 383 Madison Avenue headquarters and provide a box of Cheetos to all employees except Analysts and Junior Traders who will get $100,000 par-value of Bear Stearns commercial paper.

Jimmy the Joint

2007-11-01T09:04:00.000-07:00

Brilliant article written by Warren Spector in the WSJ.

Some choice bits:

The fund trouble was a shock for Bear, which was known as one of the Street's savviest risk managers. For years the firm relied on a system of "ferrets," or managers who monitored trades, to spot problems.

Ferrets? I think you meant Weasels…

Investment-firm chief Alexandra Lebenthal brought her 11-year-old son to visit Bear a few years back. She says she introduced him to Mr. Cayne, who pulled her aside and said, "That kid's got a rotten handshake. He's going nowhere in life."

Billy Bob Thornton is Jimmy Cayne in Dirty Bear – coming to a theater near you this Christmas!

Attendees say Mr. Cayne has sometimes smoked marijuana at the end of the day during bridge tournaments.

After a day of bridge at a Doubletree hotel in Memphis, in 2004, Mr. Cayne invited a fellow player and a woman to smoke pot with him, according to someone who was there, and led the two to a lobby men's room where he intended to light up. The other player declined, says the person who was there, but the woman followed Mr. Cayne inside and shared a joint, to the amusement of a passerby.

Asked more generally whether he smoked pot during bridge tournaments or on other occasions, Mr. Cayne said he would respond only "to a specific allegation," not to general questions.

Girls were hot wearing less than bikinis
Bear investors driving little Minis
Jealous 'cause I'm out getting mine
Jay with a joint and Spector with Subprime

Even when he wasn't there in person, Mr. Cayne was hands-on, say other associates. Mortgage-division head Tom Marano, who temporarily left his post over the summer to help stabilize the two flailing funds in the firm's asset-management division, says Mr. Cayne offered some helpful advice on handling irascible creditors during a critical period in July. Mr. Marano says the CEO told him in a phone call to "keep your Irish down," or cool his temper and try to negotiate calmly. (Mr. Marano is of Irish and Italian descent.)

Guess Jimmy can blame the whole crisis on the “Luck of the Irish”

On July 12, chatting with visitors over lunch, Mr. Cayne seemed less interested in discussing the markets than in talking about a breakfast-cereal allergy and his stash of unlabeled Cuban cigars.

Damn, Jimmy-Jay just str8 busted up his private stash. Obviously blazing with the analysts is a brilliant move to help Bear get favorable coverage again. What's that, you got some munchies? Here - just eat some of Bear's commercial paper.

Friends of Mr. Cayne say he is troubled by the summer's events and concerned about his legacy.

Yeah, if I just lost 61% YoY in income I’d be “troubled” too. I wouldn't be concerned about his legacy (say what?) - Bear's being sold to China, anyways.
You can’t make this ish up. Dirty Panda Bear in da house, suckas.

Burning New Money at the Stake

2007-10-31T09:23:00.001-07:00

FYI: The Alternative Minimum Tax or AMT was an poorly thought out piece of tax legislation designed to attack 155 rich folk from 1969 that's coming back to haunt the IRS and lawmakers.

Now Washington Democrats are seeking to cover up this blunder and boost their ratings by taking money from evil capitalist pigs who made their millions in ways these simple minded totalitarians cannot understand, which obviously makes hedgies evil charlatans (even if they brought great wealth to their investors) - hmm sounds a little like the Catholic church in the Dark Ages.

clipped from today.reuters.co.uk

The top tax-writer in the U.S. House of Representatives said on Tuesday consideration is being given to raising taxes on private equity and hedge fund managers to help pay for temporary alternative minimum tax relief.

Adopted years ago to make sure rich Americans paid at least some tax, the AMT now hits less well-off people it was never meant to touch. Without quick action from Congress, the AMT will soon affect millions more taxpayers.

The New York Democrat last week unveiled a sweeping, $1 trillion tax reform bill that included a $47 billion "patch" to fix the AMT for one year.

Rangel's tax reform bill -- dubbed "the mother of all reforms" on Capitol Hill -- also proposed more than doubling the tax rate on the carried-interest profits of private equity firm managers and to prevent hedge fund managers from sheltering income in overseas tax havens.

Ignorance is a Piss Poor Substitute for Intellect

2007-10-23T09:41:00.001-07:00

I wrote a comment on this article about the II's 40th Gala in NYC in response to the three idiots who I quote below.

9. October 23rd, 2007 10:50 am

“Is this where we complain about people who have money?”

No, this should be a post where we complain about HOW people make their money. I would argue that money in and of itself isn’t anything to abhor. How one makes their money is another issue. I would argue that the predation of this particular group of people, and in turn the corporate entities and attitudes they have spawned, on both our society and industry has been at a net cost to our society. Their half-hearted philanthropic attempts to achieve some form of personal reconciliation for their lifetimes of plundering society’s coffer won’t do a thing to reverse the ills we have borne as a result of their greed.

— Posted by John
10. October 23rd, 2007 11:00 am

All these people are from Virtual Money Making Field, just CON-ARTISTS. We must not complain about people who have money, but, look into how they got it? American Capitalists are joining the Chinese Communist Leaders to suck the blood of 1.2 billion Chinese (sorry deduct 1 Million Communist Party Members from 1.2 Billion). In the process, they will wipe out Middle Class from America. India with all its faults have democracy and exploitative power could not be concentrated at the top, like that in China.

— Posted by Shyamal Ganguly
11. October 23rd, 2007 11:26 am

Now, if we could just focus all that ambition and drive on something socially responsible, like sustainable energy sources and clean water, that might provide a real future for all on this planet - for all their so-called success, these people truly have simply exploited the rules of accounting and tax laws to create an illusion of prosperity.

— Posted by Dan Kiely

My Response to the Above:
Looking in from the window frosted by what you consider unbiased media must be fun, John, Shyamal and Dan?

Private Equity takes broken down, misvalued, companies and fixes them for the benefit of everyone involved. The people who get laid off in these deals are the excess fat that needs to be trimmed to make the firm lean and profitable again. Nobody in America has a guaranteed job - if you want that please go live in a Communist country (like I have for 11 years) and you'll quickly understand how wonderful it is to have the chance to excel based on your own merit.

Anyone who thinks that the only way people in finance make money is by "exploiting" accounting and tax laws should at least try to take a Finance 101 class before running their mouth. That statement is simply absurd and shows nothing short of a complete lack of understanding.

Regarding "half-hearted philanthropic attempts", which certainly shows how little facts you know (or care to admit to), these people could care less about your approval of their actions and don't feel the need to redeem themselves in front of anyone. They got to where they are through hard work, quick wit and sharp intellect. Certainly much philanthropy is done for superficial reasons (by every kind of wealthy individual across the world), but do you really think that all these people care about is another blurb in the paper or their name on yet another building? No - they genuinely want to give back to the very rabid mouth that wants to do nothing but bite their hand at every opportunity.

Finally, and most importantly, don't forget who the biggest investors in Private Equity and Hedge Funds are - institutions like college endowments and pension funds. Yes - blue collar working class Americans and students who are unable to pay for college on their own benefit greatly from private equity and hedge funds doing well. As for charging 2&20% - part of capitalism is having a free market, and nobody lucky enough to have invested in RenTech is complaining about being charged 40% with the returns they're getting.

These people are neither angels nor demons - they are simply more wealthy than you and made their money in ways that you choose not to understand except as how they are relayed to you by scapegoating sensationalist (and just as ignorant) media outlets.

clipped from dealbook.blogs.nytimes.com

Institutional Investor, the first trade magazine to cover Wall Street, celebrated its 40th birthday Monday by throwing itself a party at the American Museum of Natural History in Manhattan. Masters of the Universe from around the nation and the world flew in for the event.

The highlight of the evening was when Mr. Kravis jokingly apologized to his peers in the audience for charging his investors 20 percent of profits in 1976, which became a benchmark for private equity and hedge funds. He said that, at the time, there was no going rate, so he and his partners decided 20 percent was fair. In retrospect, he said with a laugh, “You could have gotten 25 percent.”

Then Mr. Simons of Renaissance took the stage. He famously takes more than 40 percent of all profits from his fund investors. “We blissfully ignored” the benchmark Mr. Kravis created, he said.

South Park Called Bono

2007-10-17T16:24:00.001-07:00

Bono is indeed a piece of crap suckling at the collective "biddies" of the wealthy and then pooping some of that attention and wealth onto the poor. (If that made no sense watch last week's South Park episode 1102 "More Crap").

Instructing people, many of whom just lost half their yearly income (if not their jobs) about giving during hard times, and at once telling them about what a rich jet-set rockstar he is.

clipped from www.boston.com

You've got stuck in a moment and now you can't get out of it.

These lyrics to a song by Irish rock band U2 might best describe the mood at the Mortgage Bankers Association's big annual conference. The glum mood was broken somewhat by U2 singer Bono, the featured speaker at the association's gathering.

"It was just so inspirational," she said, as co-worker Sal Mazzocca, seated next to her, sang a few bars of the U2 hit "Running to Stand Still."

Bono charmed the bankers and lenders with stories about his "bad boy" days as a rocker. Bono - said to be just 5 feet 6 inches tall - wore platform shoes on the podium. He also appealed to the audience's collective conscience when he urged them to do humanitarian work or give to charities, even during tough times. [and now - the punchline....]

Bono, who told the audience he flew in to Boston on a private jet, was whisked away after his talk.

No Shit, eBay!

2007-10-02T12:05:00.001-07:00

I recall trying to explain to a Lazard monkey during my interview there why this deal was going to kill eBay over 2 years ago. Fortunately for me the dumb fuck insisted that according to his model this deal would pay out in 5 years, and I didn't get my job because I told him he was wrong. Good thing - Lazard kills its analysts. Literally (I was going to link to the article about the guy who died @ Lazard pulling a week of all-nighters but couldn't find it). Incidentally, since Morgan and Merrill were the bankers why did he build a valuation? Guess Lazard didn't make the cut on that one. Whoops.

The best part of this article however is the nugget (like the one you find in the toilet after plowing through a porterhouse) from Aaron Kessler of "we pretend we're not middle market" bank Piper Jaffray. Yeah, Aaron - Skype should really look at diversifying into search engines. It's an obviously untapped market, and one Skype could capitalize on with all their experience in VoIP. I shouldn't be surprised, though. Any "research analyst" who can pick stocks with any semblance of accuracy is snapped up by buy-side shops and gets paid at least quadruple what they'd make on the sell-side. So if you've been at public sell-side research for longer than 2 years you're a failure at life. I'd tell you to jump out the window, but most banks cleverly place their research analysts on the lower floors.

clipped from business.timesonline.co.uk

EBay, the internet auction site, admitted yesterday that it had overpaid hugely for Skype. EBay bought Skype in 2005 for $2.6 billion. Yesterday it warned shareholders that it would have to take an impairment charge of $900 million (£450 million) because it had valued the group too highly two years ago.

Niklas Zennstrom, Skype’s founder, would step down as chief executive of Skype to become nonexecutive chairman. The online auctioneer has cut bonuses due to Mr Zennstrom and others by 60 percent because it was so disappointed by Skype’s performance. It would pay only $530 million in cash to the Skype founders in the only and last payment of its kind.

An eBay spokesman said: “Skype has not performed as well as we would have hoped.

But we still believe Skype to be an extremely valuable asset.”

Aaron Kessler, an analyst at Piper Jaffray, the US investment bank, said: “They haven’t really figured out a way to monetise their clients – they haven’t introduced new services such as search engines.”

Gettin' them poor folk to vote

2007-09-18T11:18:00.001-07:00

Falling behind Hill-Dog the Obaminator wants to steal my money to get the poor vote, while showing once again that so far as Democrats are concerned poor people are little children who can't possibly be held responsible for their actions (like buying a house they could never afford) and the American Dreams means never having to say you're sorry.

clipped from online.wsj.com

Obama wants to give 150 million working Americans a $500 tax credit, expand relief for homeowners, eliminate income taxes for seniors making less than $50,000 and simplify tax returns so millions of Americans can file in less than five minutes.

Obama said more Americans who own their homes should get relief from mortgage payments. The current mortgage interest deduction only goes to those who itemize their taxes, while he would create a universal mortgage credit of 10% of interest payments that the campaign says would benefit an additional 10 million homeowners.

Obama's campaign said he would pay for his proposals by closing corporate-tax loopholes, fighting international tax havens and raising the top rate on capital gains and dividends.

The Illinois senator told Wall Street investors that they need to reappraise values that focus on their own gains at the expense of struggling Americans.

Al-Qaeda Feels the Subprime Burn

2007-09-11T10:36:00.001-07:00

Nobody is safe from subprime contagion, not even terrorists who took out second mortgages on their caves to pay for new goats, chickens and ingredients for IUDs, as Osama bin Laden said he felt his minions' suffering from high rates in a video released September 7th. Never mind that interest is forbidden and there are no late payments under the Shariah law of Islamic banking - George Bush has found a way to tax the Taliban.

Global warming is also a problem for the struggling cells as packs of C4 strapped around the torso aren't exactly breathable and donkeys are known to produce more toxic emissions than any infidel's Hummer.

Despite his condolences the dapper dictator appeared somewhat insincere addressing the problem of poverty with his slick new beardcut and die job that screamed Redken 5th Ave. In fact my intel tells me Osama may not be hiding in Afghani mountains after all, but staying with his new life partner and John Edwards' stylist, Joseph "bin Fabulous" Torrenueva.

clipped from www.bloomberg.com

In the Sept. 7 video, bin Laden spoke about ``the reeling of
many of you under the burden of interest-related debts, insane
taxes and real estate mortgages, global warming and its woes,''
Sajjan M. Gohel, Director of International Security at the
London-based Asia Pacific Foundation, said.

``Bin Laden appeared to have a trimmed and dyed beard, which
ran to counter reports that he is gravely ill from kidney
disease, or holed up in a cave and cut off from the outside
world,'' Gohel said in an e-mailed statement.

Beirut in the WSJ

2007-08-30T12:36:00.001-07:00

Read the article. My hat is off to anyone who can turn chugging beers into a $1mm/year revenue stream in 3 years. Incidentally, the custom beer tables over at http://www.bjsbeerpong.com/ look amazing and I will be picking one up. The suitcase portability is great both for gestapo campuses and smaller urban apartments. Cheers!

clipped from online.wsj.com

The Value of Money

2007-08-21T19:39:00.000-07:00

Had a discussion with some intellectual friends today about the joys and burdens of money, and how as it relates to a fulfilling life of happiness, and whether the latter can be achieved with the former if one makes its acquisition his central pursuit. Here is a summary of my thoughts on the matter for all those curious:

Your family and genuine relationships (that is, those which would withstand any material stress test) matter the most in life no matter who you are or what's in your wallet.
“Friends” who hang around you because of your socioeconomic status are leeches and should be treated as such - in the medical sense - that is, you should only allow them close to you if they serve a purpose and then immediately discard them.
Money is an enabler of greater enjoyment of our immaterial possessions. It is perfectly rational to live in the moment instead of only being focused on working to make your "tomorrow" better since that day, as my friend pointed out, will never come if you set no clear goals and become caught up in a neverending race to acquire ever greater wealth. What if living in the moment, however, involves chartering a jet to Paris for a weekend with the woman you love? What if it involves buying a work of art you’ve always admired or populating your library with first editions? Do you need these things to be happy? Of course not. All man needs (loosely based on Maslow's Hierarchy) is physical nourishment, intellectual stimulation and love.
Thus I agree that it is worthless to chase money aimlessly (and especially if you must sacrifice your relationships, your youth or your health) but if you truly love what you do and by luck it happens that this profession makes money then you shouldn’t feel like your life lacks meaning just because you’re not engaged in what society deems to be more creative or nobler pursuits. A person who derives his greatest joy from structuring derivatives should not try to be a poet, painter or doctor. Doing what's against your nature is never right.
A litmus test I often ask myself is "Would I still do this job for free and if I just won the lottery?"
I’ve often wondered myself what other careers I could’ve pursued, but the reality is we have many talents and you won’t be able to explore and grow them all fully. Thus you have to compromise and pick your path, and in doing so choose the one that you will enjoy the most, not the one that will lead you to the greatest riches, fame or power. I don’t know many people who achieved greatness in finance or otherwise who did not love what they did. You need passion to excel.

Goldman Sachs Is Perfect...

2007-08-15T18:09:00.001-07:00

...everyone else is just cramping their style:

clipped from www.bloomberg.com

Goldman Sachs Group Inc. blamed its $3 billion in hedge-fund losses this month on too many quantitative managers making the same trades.

"Successful quant managers will have to rely more on unique factors, while we have developed a number of these factors over the last several years, in hindsight we did not put sufficient weight on these relative to more popular quant factors." {Hate to break this to ya, but this statement means your model was not unique as a whole and furthermore that you didn't give these "unique" factors enough weight to actually trade based on them - i.e. the factors are crap used for marketing materials, and you have the same damn model as every other quant fund.}

Goldman's quantitative funds use six major investment ``themes'' that it identified as momentum, earnings quality, valuation, profitability, analyst sentiment and management impact. All suffered ``extreme negative returns'' from July 30 through Aug. 10. {Gee whiz these sure would sound unique...if it was 1960s when Vinnys roamed the floor of the NYSE like brightly colored dinosaurs.}

Last week, ``quantitative portfolios fell (and rose) by unprecedented amounts -- far more than at any time in the history of our data,'' according to the Goldman report. {The only thing that rose was the P&L at Goldman's prop desk who found out about the liquidations early and front ran the trades, notes an inside source.}

The world's most profitable securities firm and second-largest hedge-fund manager lost $1.4 billion, or 28 percent, in its Global Equity Opportunities fund this month while the flagship Global Alpha, fell 27 percent year to date. {Fortunately, unlike Smelly Bear Stearns Goldman's got plenty of money in the Sachs to keep these funds afloat - if they were to liquidate their reputation would take a hit and cause serious long term damage to the firm. Bear, on the other hand, has no reputation to speak of and is thus scrappily taking all of their investor's money so they can keep themselves afloat long enough to get CEO Jimmy Cayne's golf score down to non-laughable levels.}

Three Horsemen of the Crapocalypse

2007-08-15T13:48:00.000-07:00

I know it's been a while since I posted. Some of you were wondering if I got killed in the avalanche that started rolling with subprime and got bigger as it piled into credit, then equities and then the global macro markets. The Austrians were onto something, that's for sure. Rest assured, however, that I am alive and well - a tsunami of volatility can be a beautiful thing if you know how to surf it. Of course with so much free money being stuffed into the markets by funds liquidating their assets for pennies on the dollar (think 10 Amaranths and I'm John Arnold with a bigass fishing net) there has been no time left to pen witty banter on a blog. I got post ideas, though and will get to them when I have time. Meanwhile check out these three intraday charts that spell either doom, boom or opportunity depending on your positions:

VIX:
and SPX:
Treasuries (TYU7 Future):JPY
This poor otter was caught on the tracks of the Vega train today:

Don't worry little buddy, the markets will rebound ...just not this week. Once S&P breaks the 1400 floor more stop losses will get triggered (leading to a further Treasury and Yen rally as hedges and carry trades are unwound). More bodies of failed PMs will surface (but we all know Portfolio Managers never die - they just go to hell and regroup [unless the FERC gets all pesty]).

Stealing money from your friends for political advancement

2007-07-10T17:12:00.001-07:00

John Edwards clearly learned something (besides poverty) at Fortress - life, like trading, is a zero sum game and someone always has to take a loss. In this case - his former colleagues.
Johnny was overheard saying from behind his modest ivory and platinum desk while lighting a handrolled Cuban with a $1000 bill - "Hey, it was either that or no more $400 clips, and I gotta look good for the campaign. The wifey aint gonna last past the primaries."

clipped from online.wsj.com

Democratic presidential candidate John Edwards proposed increasing taxes on private-equity and hedge-fund managers in three ways [through extortion, pogroms and inquisitions] saying it would make the tax code more fair without damaging U.S. capital markets [it's not like those hedgies could just go public on the LSE and move themselves to London or Dubai].

Taken together, the former North Carolina senator asserted, these steps would raise [steal] $4 billion to $6 billion a year [that will fund a program to rid the world of sex slaves by buying the market and putting them into a safe compound adjacent to the White House].

Mr. Edwards, himself a former adviser to the hedge fund Fortress Investment Group, thus became the first major Democratic candidate to wade deeply into the controversy sparked by the explosive growth and profitability of hedge-fund and private-equity firms [because making money by improving failing companies is un-American - if you want to be a capitalist bastard go to China!].

While making amelioration of poverty a centerpiece of his campaign, the one-time trial lawyer earlier this year reported that he had received $1.7 million in salary and investment income from Fortress, where his holdings total $16 million [but not for long! Unexpected drawdowns are a bitch.] Mr. Edwards's stance could help shore up his populist credentials after criticism of his personal wealth and lifestyle have eroded his poll standings [surely you jest!].

Stylish Condoms for BSDs

2007-06-28T11:54:00.001-07:00

News like this always worries me. When Cavalli and Versace start designing subdued (!!!) clothes for hedgies I get a desperate need to lock down another $500mm infusion of capital pronto and find it hard not to lend at least some credence to naysayers preaching of the hedge fund "bubble." The good news, however, is that maybe this new trend will tone down the effeminate rainbow that has been painting men's collections in recent seasons brighter than it ever has since the eighties.
Incidentally, highly recommend reading page 2 of the article for those with a cursory, but developed, interest in fashion. Dsquared and Jil Sander looking good for '08

clipped from www.nytimes.com

"HEDGE funds, hedge funds, hedge funds,” Richard David Story said before the Ferragamo show on Sunday when asked to account for the current mood in men’s fashion all pitched to a guy with both a high net worth and a 30-inch waist.

To judge from all the $700 cotton poplin trousers (Bottega Veneta), $250 flip-flops (Hermès) and $20,000 satchels in matte tobacco crocodile (Tod’s) on offer, the fractional-jet-share crowd has coffers so deep that there’ll be plenty left over for chronographs or John Currin paintings.

That Bottega Veneta man — lithe, young, carefree in his moneyed assurance — seemed to be everywhere. He was spotted at Roberto Cavalli’s unexpectedly restrained show held in a cavernous disco near Linate Airport wearing not the leopard spots and junky rocker paraphernalia one expects from this designer, but instead the subdued suits and the slouchy suede driving shoes favored by the Maserati crowd. He appeared again in shiny trench coats, knife-slim suits and a muted palette at the Versace show, designed this season by the Russian-born Alexandre Plokhov, formerly of Cloak.
Another avatar of the hedge-fund hottie turned out at Valentino’s brand-consistent presentation, notable as usual for natty Roman tailoring styled in a way that is often more than a little bit campy. Wasn’t that double-breasted white jacket nipped at the waist once a uniform of sorts among the high-end gigolos populating the piazzetta in Capri?

How I Spent My Summer Vacay

2007-06-22T12:00:00.001-07:00

Ahh, to have the Treasuries keel over, the Pound rally to the 2 spot again and big LBO bets come to fruition. Certainly makes one's mind wander to things like G5s, Breguets and single malts twice your age. To that effect, I found this Forbes article both inspirational and useful.

clipped from www.forbes.com

Assuming they can pry themselves away from their computers for a quick break this summer, hedge fund partners are planning to spend a fair amount of money enjoying the good life.

Many in the business are already anticipating that their funds' strong performance so far this year will morph into a big incentive payoff come winter.

The average hedge fund partner plans to drop $82,000 on watches and jewelry alone this summer.

The biggest-ticket item of the summer seems to be yacht rentals, where the average budget is $446,000. But only 14 of the 301 partners in the survey plan to rent a yacht. The rest of them probably own.

Hedge fund clients want unusual and off-the-beaten path destinations, challenges to take their minds off number crunching. Surfing down the ash covering a volcano in Nicaragua, heliskiing in Chile, anaconda hunting in the Amazon and motorbike safaris in Namibia are all popular.
They plan to spend an average of $96,000 on "experiential" vacations.

Whitewashed Blackstone IPO

2007-06-15T11:44:00.001-07:00

The Bigot Jesse Jackson is at it again, and now he's after the nappy headed baller Stephen Schwarzman and his "racist" IPO of Blackstone. Apparently Blackstone didn't go out of their way to put any "minority owned" firms at the top of the syndicate.
This is obviously a boldfaced lie. First off, who owns a public firm? A: Shareholders. This IPO is co-led by Citigroup, whose biggest shareholder is Saudi Prince Alwaleed bin Talal, member of a minority group that is highly ostracized by contemporary American culture. (Note: Prince bin Talal has not donated any money to Jesse Jackson) Second, Schwarzman belongs to a minority group himself, and a much smaller one than African Americans. (Note: Jesse Jackson hates Hymies.) Finally, note that while 7 so called "minority owned" banks did make the cut, heavyweights Goldman and JP Morgan were originally excluded, but finally were allowed to take a third-tier spot. (Note: Goldman and JPMorgan did not donate any money to Jesse Jackson and thus are of no importance to him.) So in case you haven't figured this one out yet, only firms that give money to Jesse Jackson, like Blaylock Capital, matter to Jesse Jackson. Hey, the man has illegitimate children to feed.

clipped from blogs.wsj.com

Jesse Jackson is not impressed with Stephen Schwarzman’s new-found wealth. What Jackson is more focused on is the list of underwriters for the $4.7 billion IPO of Schwarzman’s firm, The Blackstone Group. In an interview with Deal Journal, Jackson says the share sale unfairly shortchanges minority-owned firms.

“We’re going to protest this pattern of exclusion,” Jackson says. He calls it “Wall Street apartheid.”

“We are qualified people to be on the front side of this deal.” He named minority-owned firms including Blaylock & Co., Loop Capital and Williams Capital. Such firms have “not a capacity but an opportunity deficit.”

Jackson says that because firms going public are subject to regulation, Blackstone is “obligated to be inclusive and fair.” He says he will push for hearings on the matter on Capitol Hill if his concerns aren’t addressed.

We should also note that [a] number of minority-owned firms have contributed to Jackson’s various causes