Weekly Economic & Investment Wrap Up: 3.14.08

March 18, 2008 | Leave a Comment

Attached/linked please find And That’s The Week That Was, the Brounes & Associates market/economic commentary for the week ended March 14, 2008. Ex-Governor Eliot Spitzer’s “incident” brought a little comic relief to what had otherwise been a dark and gloomy time on Wall Street.  Of course, even traders and portfolio managers with underwater positions can find comfort and take great delight in the misfortune of others (especially when those “others” are despised by most on the Street).  While the economic numbers still remains weak and recession talks are heating up with each passing day, Chief Bernanke turned to some creative financing arrangement to help breathe life back into the economy and the markets.  (And, it worked, if only for one day).  Oil soared to new records for no good reason, leaving some energy analysts “hopeful” that once any semblance of normalcy (or reality) returns, oil and gas prices could tumble (pretty significantly and quickly).  News of a near failing by Bear Stearns (and a subsequent bailout) reminded investors that the crisis is far from over.  (Who will be next?)  The Fed meets next week and most watchers are again looking for more of the same.  Anything short of a 75 bps cut will most likely be viewed with disappointment.  So much for those creative juices, Dr. B.  
Coming up in the week ahead:  Industrial Production (Monday), PPI (Tuesday),
Housing Starts (Tuesday), Fed Policy Statement (Tuesday), Good Friday
(Friday)

And That’s The Week That Was: 1.25.08

January 25, 2008 | Leave a Comment

Attached/linked please find And That’s The Week That Was…the Brounes & Associates market/economic commentary for the week ended January 25, 2008.  Is the recession spreading abroad?  Could it possibly be nearing an end?  Do our domestic markets follow global ones or do theirs follow ours?  Does the Fed truly have the power to impact the markets (and should they)?  Can a bipartisan Congress make a difference in slowing (ending) the mortgage fiasco and related credit crisis?  Is anyone even paying attention to quarterly earnings?  The answer to these (and other questions) is a resounding “I DON’T KNOW???.”  Domestic traders were greeted this (shortened) week with major sell-offs across most international markets on fears that a US recession would spread across the world.  From the UK to France…from Germany to India…from Hong Kong to Japan…from China to Indonesia…from everywhere to the United States…that’s how interconnected the global economy and the markets are these days.  The Fed conducted its first inter-meeting fund rate cut (75 bps) since the aftermath of 9-11.  Republicans and Democrats actually agreed (somewhat) to a stimulus package.  And investors did not know exactly how to react as revealed by the immense volatility and price swings during the week.  Perhaps next week will be more subdued (then again, check out the list of economic releases below).  Rest up…the fun continues Monday. 

Coming up this week:  New Home Sales (Monday), Consumer Confidence (Tuesday), GDP (Wednesday), Fed Policy Meeting Statement (Wednesday), Personal Spending (Thursday), Unemployment Rate/Nonfarm Payroll (Friday), ISM – Manufacturing (Friday) 

And That’s The Week That Was: 1.18.08

January 21, 2008 | 1 Comment

Attached/linked please find And That’s The Week That Was…the Brounes & Associates market/economic commentary for the week ended January 18, 2008.  With virtually all investors calling for some pretty dismal earnings numbers from Citigroup and Merrill, the results were even worse than expected.  Enter more foreign governments with a continuation of the international “bailout”…talk about globalization at its finest/worst.  (Is anyone else concerned about this?)   Earnings season has lived up to its most pessimistic predictions; financials led the negativity, though some consumer-driven companies suffered last quarter as well.  For now, there seems to be no reprieve in sight including Bush’s quickly conceived economic stimulus plan that many believe to be “too little, too late.”  News from the housing, retail, and inflation fronts brought even more sentiments of “gloom and doom.”  Oil prices declined (at least, that’s a positive), gold rose (the ultimate hedge), and the Fed looks to be on target for a 50 bps cut in the weeks to come.  Equities tumbled early in the week and never looked back.  Both the tech-heavy NASDAQ and the small-cap Russell 2000 have fallen over 10% thus far this year and the other indexes aren’t far behind.  Perhaps investors will get this intense negativity out of their system all at once and then move on to better things?  (Wishful thinking…) 

Coming up in the week ahead:  Existing Home Sales (Thursday)

Blogs as Indicators of Sentiment

October 24, 2007 | Leave a Comment

Our pal Finbar is reporting today that many banks are issuing policy statements asking employees to refrain from making comments on blogs.  I don’t know if this is limited to the UK  or also prevelent here in the States as well.  From talking to many friends and colleagues at big banks here, I understand that many employees are already restricted from visiting many social media type web sites such as Facebook.  This is too bad.

Finbar makes the keen insight that “Markets live on rumour, denial and false hopes and blogs are the best way to get a feel for the true market sentiment.”  I believe the same and I know there are a number of companies out there who are attempting to capture, qualify and quantify that sentiment to advantage.  Does any body know which firms these are?  I’d like to get a better handle on how they do this and how accurate their indicators are.

As Finbar points out,  ”the markets are happy at the moment but the blogs are not; market corrections take time.”
blog posts

And That’s The Week That Was: 10.19.07

October 22, 2007 | Leave a Comment

Attached/linked please find And That’s The Week That Was…the Brounes & Associates market/economic commentary for the week ended October 19, 2007.  First the good news…at least the Dow didn’t plummet 23% today (like it did 20 years ago).  And now the bad news…366 points and a 2.6% decline ain’t nothing to sneeze about (especially on the fifth straight down market day of the week).  With oil prices climbing through the proverbial roof (for no real reason…besides ongoing turmoil in and around Iraq), investors needed something positive to sink their teeth into.  Unfortunately some weak (though expected) earnings reports by financial services companies (and others) sent them looking for the safe-haven of the treasury markets.  Dr. B. and Treasury Secretary Hank confirmed that housing won’t be improving anytime soon.  Oh well…in 1987, the Dow close at 1,738.74…today it stands at 13,522.  (How’s that for a bright side?) 

Coming up in the week ahead:  Existing Home Sales (Wednesday), New Home Sales (Thursday)

blog posts

Hedge Fund Salaries and “Fairness”

August 30, 2007 | Leave a Comment

Dealbook reports on a couple of new studies that whine about hedge fund manager salaries being out of whack with the rest of the workers in the United States:

Last year, the top 20 hedge-fund and private-equity-fund managers earned more in 10 minutes than United States workers made the entire year, according to a report released Wednesday by two advocacy groups.

HFL says: Notice how these “advocacy” groups like to single out the top 20 hedge funds.  What about the other 8500 hedge funds out there?  Guess they don’t count.

According to the study, that dwarfs the discrepancy between chief executive officers and workers: Corporate chieftains, on average, earn about 365 times the average pay.

The Institute for Policy Studies is a nonprofit research group that promotes alternatives to the “corporate-driven approach to globalization.” United for a Fair Economy, based in Boston, “raises awareness that concentrated wealth and power undermine the economy” and corrupts democracy, according to its Web site.

HFL says: Let me clarify this for you … The Institute of Policy Studies and United for a Fair Economy are nothing more than socialist front groups determined to destroy the capitalist system.  Groups like this like to hide behind euphamisms.  It is always about promoting “fairness” and “preventing the corruption of democracy.”  But really its about taking your liberty and controlling how successful you can be.  No wonder they are out to get hedgies.

The study’s authors said top hedge fund managers are making more in a fraction of an hour than a typical worker makes in a year. According to the study, hedge-fund chiefs average $12.6 million a week, or $210,700 an hour based on a 60-hour week. That’s $35,100 every 10 minutes, compared with $29,500 a year for the average worker.

HFL says: Horror, the horror.  None of these nitwits can make over $35K per year.  No wonder their pissed off.  They want diamonds like Percy Walker has — Oh, but that would mean having to go out and earn it!  Nevermind.

Sarah Anderson, a director at the Institute for Policy Studies, supports a Congressional move to close the loophole allowing private investment managers to pay lower tax rates than ordinary Americans.

HFL says: Of course she does … because she’s a socialist.
blog posts

Debacles, Implosions and Fraud = the SEC

August 30, 2007 | Leave a Comment

Well, times are definitely a changin’.  The SEC continues to monitor the hedge fund industry for fraud and they now have a new rule meant to deal with it.  As the FT reports …

The five SEC commissioners in July voted unanimously to adopt a new rule clarifying hedge fund fraud. It prohibits advisers to investors in hedge funds as well as pooled investor vehicles from making false or misleading statements to investors or defrauding investors and prospective investors.

The rule stems from a 2005 case before the US Court of Appeals brought by Phillip Goldstein, head of Opportunity Partners, a New York-based hedge fund. He successfully overturned the SEC’s registration requirement passed in 2004 by protesting that it would lead to hedge funds being saddled with additional compliance costs.

At the time, the SEC argued that the rapid growth of hedge funds in recent years combined with the rising interest of retail investors and a growing number of fraud cases in the industry justified the registration requirement.

HFL says: The SEC needs to find Jimmy Hoffa and bring him back from the dead.  Instead of trickling out little rules here and there over time, Jimmy would simply impose the regulations all at once (we all know its coming anyway).

Another hedge fund bites the dust: Basis Capital is now dead and ready for burial.  Another victim of the subprime situation. 

HFL says: Check out hf-implode.com.  They have a nice run through of the Basis situation.

Don’t worry your little head about the subprime situation because Sen. Chuck Schumer is on top of things — see the letter from Bernanke to Schumer here.
blog posts

What Happened to Diversification?

August 24, 2007 | Leave a Comment

Matthew Rothman at Lehman Brothers recently published a research piece in order to explain why market neutral/statistical equity arbitrage funds were getting trounced in July and August.  In short he concluded that a massive unwind of positions by multi-strategy funds and other forced sellers has caused systemic perverse performance of factor models (i.e., even though value investing makes a lot of sense, it’s not working).  So the real noodle scratcher here is that there are hundreds of quantitative hedge funds and prop desks with fancy, “differentiated” models and all sorts of bells and whistles, but at the end of the day, after all of the hocus pocus, most funds have the same long and short positions.  Has no one been able to build a better mouse trap, or is everyone still buying into the old University of Chicago value and momentum approach?  Whatever happened to artificial intelligence, principal component analysis, correlated pairs, and all of that other jazzy stuff?  Hey, they may not have always worked, but at least they were differentiated and added real diversification to portfolios. 

A word of advice to budding start ups: make sure you are really differentiated.  Before you launch, speak with your potential investors, learn what’s in THEIR portfolios and determine how your system can diversify and enhance their overall program, and then tweak if you have to.  Index product is becoming more abundant and cheap; think hard about how you will compete.

blog posts

Healthy Intervention versus Fiscal Imprudence

August 21, 2007 | Leave a Comment

So the Fed lowered the enigmatic “Discount Rate”, in an effort to provide liquidity into a floundering system.  I hate to say it, but doesn’t this send a bad message to all market participants along the lines of: “Don’t worry about it.  Keep chasing risky assets and compressing spreads to unreasonable tights.  If we have a hiccup, the Fed will bail us out!”  Not quite the story that I grew up with.  When I pumped my entire week’s stipend into the video machines and then went to the bank (i.e., my father) for a loan for necessities I was told to get lost, suck it up, and stop wasting my money.  A valuable lesson that I’m sure is not lost on the majority of my fellow investors. 

How about the multi-billion dollar injections by investors including Citadel, Goldman Sachs, Eli Broad, and the like?  This sort of intervention I find much more palatable and healthy for the long-term viability and fiscal plumbing of our system.  Rather than the Fed providing a cheap safety net to continue feeding the borrowing machine, the hedge fund saviors are saying: “Sure, we’ll bail you out, but at a painful discount that will make you think twice before getting into this same predicament again”.  Food for thought for the Fed, SEC and other governmental types that scrutinize hedge funds: Take a closer look; hedge funds will again save the day in a fashion more akin to the tradition of America’s great free market system.

blog posts

Jimmy Cayne Needs a Bucket

August 10, 2007 | Leave a Comment

When Jim Cayne isn’t on the golf course, we think he’s dining at some fancy restaurant like Le Cirque or smoking those expensive stogies in his office.   As Reuters reports below, he’s getting ready to jet off to communist China to secure some more long term loans — but Bear has “ample liquidity” so their investors should feel just fine even though the firm just vomited up two large hedge funds.  (The irony here is too good to pass up - I just HAD to mention it).  Too bad, the once entrepreneural firm is being beaten to death.   I hope the Chinese restaurants over there have an ample supply of buckets ’cause their gonna need it.    They’re about to get a lesson in gluttony and high livin’.

Are you an investor in Bear Stearns?  Do you care that the executives seem to care more about their lifestyles than their business?  Do you care that the firm as been downgraded by the S&P to Latvian bank status, as Fintag says?

Bear Stearns looks to China as crisis rolls on

By David Wighton and Francesco Guerrera in New York and Jamil Anderlini in Beijing

Published: August 10 2007 04:31 | Last updated: August 10 2007 04:31

Jimmy Cayne, the chief executive of Bear Stearns, is planning to travel to China in the next few weeks amid speculation about a possible joint venture with Citic, the state-owned financial conglomerate.

News of the plan comes as Mr Cayne seeks to head off a crisis of confidence in the bank whose co-president, Warren Spector, was ousted on Sunday.

Bear has sent letters to clients reassuring them it has “ample liquidity” to support its businesses in spite of the fallout from the collapse of two mortgage hedge funds it managed.

One senior Wall Street banker said Bear might need to line up new long-term funding to calm counter-parties and lenders. “A strategic stake by a partner with deep pockets would be even better,” he said.

Last year, Bear was in talks about a joint venture with China Construction Bank but negotiations fell apart due to opposition from senior Chinese officials who felt left out of the process, according to one Chinese banker. CCB’s then president, Chang Zhenming, is now vice-chairman of Citic.

The talks with CCB involved the Chinese bank buying convertible bonds that could be translated into an equity stake of up to 20 per cent in Bear.

Mr Cayne is keen to increase the international revenues of Bear, which are relatively smaller than its bigger Wall Street rivals, and China represents a huge potential market for US investment banks.

Top Chinese officials are now nervous about big direct investments in US financial companies following the fall in Blackstone’s share price, according to a senior US banker who was in China last week.

In June, the Chinese government paid $3bn for a stake in the private equity group, whose shares are now trading almost 20 per cent below their flotation price. However, China Development Bank went ahead with a proposed $3bn investment in Barclays last month.

In spite of Bear’s challenges, it would be reluctant to sell a significant stake at about the current share price which is only about 1.2 times book value.

Brad Hintz, analyst at Sanford Bernstein, said Bear was facing “an old-fashioned funding run” amid concerns about counterparty risk. “Trading lines are being pulled and repo lines are being reduced. The Japanese banks aren’t answering Bear’s phone calls, the commercial paper investors are passing on their paper, counterparties are telling Bear’s traders that they are ‘full up’ on Bear’s name.”

But Mr Hintz, a former chief financial officer of Lehman Brothers, said his analysis showed that Bear could survive a funding run.

Who do you think buys out the Bear? 

Comments