Sep

4

Hedge Funds + Subprime Collapse = Profits

September 4, 2007 | Leave a Comment

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An interesting story from Fxtraders.eu (subscription required) … Evidently, while some hedge funds focused on mortgage backed securities have suffered losses (that have been duly noted in the press) related to the decline in the sub-prime mortgages space, many hedge funds have also been able to generate profits as a result of its decline.  Well, I must admit that I don’t mind pointing out that we told you so.  Consider what we blogged on July 19th:

So why is HFL jumping on the bandwagon with commentary on the sub-prime issue?  Well, it’s all about low hanging fruit.  As we have seen in the past with excessively oversold markets (e.g., distressed in 2002 and converts 2004 and 2005), the smart money is ready and waiting to buy at the bottom and reap years of rewards while the mainstream sits on the sidelines and licks their wounds inflicted by painful forced liquidations.  Consider this HFL’s call out to all players with experience in the sub prime sector: now is the time to start thinking about ramping up your own sub-prime vulture funds!  Whether you’re a victim of a downsized prop desk or a shuttered hedge fund, now is your chance to strike gold.

 It certainly seems that some hedgies positioned themselves well and are now benefiting from the subprime collapse …

In what has been the best short sale theme since 2002, many hedge funds have greatly benefited from the collapse in sub-prime mortgages via their short exposure to mortgage lenders and sub-prime mortgage backed securities and indices. While some have focused on shorting mortgage lenders and buying credit default swaps (CDS) on specific mortgage backed bonds, others have elected to purchase CDS on indices of these securities (the ABX series), with most focused on those securities issued in 2006 under more relaxed lending standards.

Even with some hedgies profiting from the subprime mess, you probably won’t see the mainstream press write about it much — at least not for a few more weeks.  Fortunately, investors can be smarter as we reported in July …

There will, however, be no shortage of astute investors that understand the signs of an oversold market and smell the opportunity for huge profits. 

Amen.

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Sep

1

And That’s The Week That Was: August 31, 2007

September 1, 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 August 31, 2007.  Is anyone out there?  After a few days of “stalking” Dr. Bernanke and overanalyzing his every move, investors headed out for their last vacation of the summer.  A hectic week on the economic front was overshadowed by some serious Fed-speak (minutes, letters, speeches) and everyone seems to be speculating nonstop on the actions at the next policy meeting.  (Even W joined the fray with some lending ideas of his own…any chance of his becoming a Fed governor after his term expires?)  Volatility, in the form of triple-digits moves on the Dow, remained the norm this week and cautious investors continue to seek the safe-haven of the short (and sweet) end of the treasury curve.   A few new deals were announced, though the torrid pace of the first two quarters has definitely slowed.  Enjoy the day off.  (How soon until Columbus Day?) 

Coming up in the week ahead:  Construction Spending (Tuesday), ISM – Manu (Tuesday), Fed Beige Book (Wednesday), ISM – Services (Thursday), Unemployment/Nonfarm Payroll Additions (Friday)

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Aug

31

Hedge Fund News: Friday, August 31

August 31, 2007 | Leave a Comment

There is a lot going on today with the subprime situation, etc.  So, for the sake of brevity, here are some of the more compelling headlines today …

 And for a bit of fun, our friends at Fintag have some scoop on the Wall Street sequel, Money Never Sleeps

Gekko is back – as a hedge fund manager.

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Aug

27

And That’s The Week That Was

August 27, 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 August 24, 2007.  The summer is winding down; folks are planning for one last Labor Day vacation getaway; schools are back in session; the NFL season is upon us.  And, yet, the business news of the day never seems to change.  Subprime, Countrywide, Fed actions, flight-to-quality…its beginning to sound like a broken record.  Subprime, Countrywide, Fed actions, flight-to-quality…its beginning to sound like a broken record.  Well, for a change, this week’s market movements had a positive feel (unless you owned the 3-month t-bill) as investors took another flier on equities.  There was a short-lived rumored Warren Buffett sighting, a Bank of America-led “bailout,” and some decent releases on the economic front.   At this point, we will take any positive news we can get.

Coming up in the week ahead:  Existing Home Sales (Monday), Consumer Confidence (Tuesday), GDP (Thursday), Personal Spending/Income (Friday)

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Aug

22

Oh Where oh Where Have all the IPOs Gone?

August 22, 2007 | Leave a Comment

With the exception of KKR Financial Holdings LLC’c (ticker: KKN) latest $230 million capital raise (which was actually not an IPO, but a follow on offering), the hedge fund IPO and public market activity seems to have come to a grinding halt.  Word on the street from a number of investment bankers specializing in this sector is that private market valuations are much more compelling and are likely to become even more attractive over the coming weeks.  As such, it’s pretty tough for the big boys to justify tying their money up in public offerings right now when there are a plethora of private market bargains to be had.  It seems there is at least one high profile hedge fund liquidation per week and no shortage of hedge funds and private equity players willing to come in and take over assets or inject capital.  Let’s not overlook the obvious: why not go to market with an IPO that’s sole purpose is to purchase assets and/or inject liquidity into floundering hedge funds?  Seems like the best of all worlds.  This would have to be a multi-billion dollar doozy of an IPO, however, in order to be executed with any success.  Could it be time for Blackstone’s IPO record to fall?

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Aug

18

And That’s The Week That Was

August 18, 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 August 17, 2007.  What’s the best way to ruin a vacation…more negative news in the markets.  (On that note…please excuse any typos.)  With the subprime issue now spreading to commercial paper, money market funds, and other more traditional mortgage lenders, investors seem to have few places to turn (other than short treasuries).  Bad news from Countrywide (among others) sparked another sell-off, though Bernanke attempted to ride in on a white horse to save the day (with a late week reprieve).  The Friday rally was certainly a nice sign (though investors will remain nervous through the weekend and beyond). 

Coming up in the week ahead:  Leading Indicators (Thursday), New Home Sales (Friday)

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Aug

4

And That’s The Week That Was

August 4, 2007 | Leave a Comment

And That’s The Week That Was…the Brounes & Associates market/economic commentary for the week ended August 3, 2007.  A week highlighted by a huge toy recall, some more devastating news on the subprime front, and a weaker than expected labor number can’t possibly be positive for the markets.  Then again, coming off the worst week for equities in five years, everything is relative.  Earnings number were mixed (as usual) and a few corporate transactions brought some welcome news (unless you enjoy the integrity of the Wall Street Journal).  Stocks were buzzing along as bottom fishers searched for value in the recent market downturn.  However, some ill-timed comments by the Bear Stearns CFO sent equities into another end-of-week tailspin and left investors once again licking their wounds heading into the weekend.  Bonds (by default) are back in favor as the economy seems to weaken with each new release.  What say you, Dr. Bernanke?

Coming up in the week ahead:  Fed Policy Meeting (Tuesday)

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Jul

18

Bear Sterns to Their Hedge Fund Investors: No Value Left

July 18, 2007 | Leave a Comment

Most folks following the financial news are already aware of this …

July 18 (Bloomberg) — Bear Stearns Cos. told investors in its two failed hedge funds that they’ll get little if any money back after “unprecedented declines” in the value of securities used to bet on subprime mortgages …

Estimates show there is “effectively no value left” in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and “very little value left” in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter. The second fund still has “sufficient assets” to cover the $1.4 billion it owes Bear Stearns, which as a creditor gets paid back first, according to the letter, obtained yesterday by Bloomberg News from a person involved in the matter.

Wow.

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