28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
One moment everything is fine and the next it is not. This has been the prevailing state of play for many months. When a supposedly healthy bank asks for more capital or a powerful CEO fails to distribute the bonus pool to his minions, we hear the words "I'm sorry".
Yesterday I aggregated some emails from a couple of very aggrieved GLG [Editor: That will get them off the scent then] workers who explained in graphic detail how GLG is collapsing internally (disgruntled investors, poor systems, uncertainty as to who runs the place etc). As a blog I have no resources to validate anything and I am sure most of it was lies, damned lies and allegations but there were too many common themes to ignore. So what does a humble blogger do? Well in this case I have decided humor is the way forward [Editor: You think this is funny?]. You cannot be sued for libel this way so here goes:
GC (Handsome, surfing dude who is a hit with the investors, voted best trader in the world) enters the plush offices of MR (gruff, graying man with a poor taste in ties), the CEO of GLG, one of Europe's most powerful and respected hedge fund groups.
GC: Manny, I know we don't see eye to eye.
(MR is frowning at his computer screen)
MR: Wait please. I am bidding online. A rare 1925 Chateau La Fayette has come up for auction. Yes, yes I am winning. GC: Why are you reneging on the bonus promises you made to my fellow traders? MR: GLG is my firm. I run it and the bonus pool is mine. I dip in first and give the rest to those I like. GC: Surely you reward those who perform? MR: If I don't like them, why should they benefit? GC: You don't like me and yet I created about 60% of the bonus pool. I cannot take this any more and I am leaving. MR: Go then. People invest in my firm because of me. GC: I will leave. Jabre has said he will help me out and a number of Goldman partner investors will come too. I have won awards and you are just a back room boy who doesn't know what a short is. MR: I am bigger than GLG and you are just a lowly employee. GC: I will demand compensation. I want my options to crystallize now. MR: What's an option? Hang on while I check wikipedia. GC: Why do think anyone cares that you were at Goldman? Didn't they fire you because you ran out of excuses? MR: Go and talk to Noam. This is a very stressful time. Hang on, another bottle has come up for auction. And when are you getting your hair cut? GC: Why do you intimidate my traders so much? They have no respect for you at all. Many of the investors want out when I am gone. Why would they want to leave their assets to be managed by an ops person? MR: I know you don't like me. It is because I am a dollar billionaire, isn't it? And you worked for that Australian bank that launders Chinese money and are envious of my pedigree? GC. It's not about liking, it's about running a proper company with governance and all that US listing stuff. MR: I am imposing a redemption penalty on investors who want to leave because you are wanting to leave. GC: Why were you fired from Goldman? MR: You are a nasty piece of work. GC: Maybe, but at least I work. You sit around all day drawing your millions and alienating everyone. Why is it you can come across as so charming to our investors and yet be such an insecure parasite to us internally? MR: Talking of which I got a call from an Investor saying that are really concerned about your unhedged exposures to positions outside of the OM. Why are you trading Zimbabwe government bonds? You look tired too. Been doing a Jabre have we? Why do you carry around so many cell phones? Shall I tip off the SEC and get them to take a further look? GC: Why would you do that? MR: I don't care. I am locked in and if this firm goes down, I get first cut of the assets. I am the key man, I am GLG. You are just a scummy trader. GC: And I am out of here. You can sit there and play on ebay but I will leave and set up a vulture fund with Jabre and buy out this piece of shit. MR: Yes, I am top bidder again. God I am good. I'm sorry, what were you saying?
GC leaves the room.
[All characters and events are fictitious and do not represent fact or reality. Apparently.]
Back to the real news:
I predicted HBOS would come out with a rights issues (one more to go) and oil would head towards USD127 (it's getting close). Apparently oil is going to hit USD200 and every UK bank is going to rush out rights issues. I must be losing my touch.
Perhaps I should stick to writing scripts of soap operas [Editor: You are already in your own soap opera so the transition should be easy]
OPEC'S PRESIDENT SAYS OIL PRICES COULD HIT $200 A BARREL; 60% OF THE WORLD'S POOREST PEOPLE LIVE IN RESOURCE-RICH COUNTRIES
Opec's president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help. Also on Monday, a report by Transparency International said that sixty percent of the world's poorest people live in resource-rich countries.
The comments by Chakib Khelil, Algeria's energy minister, were published on a day when oil prices hit a historic peak close to $120 a barrel - up 82 percent in the past year. In December 1998, the price of a barrel of Nymex crude was $10.72.
Khelil said there was nothing that the oil producers' cartel could do to bring down the high price, which he blamed on geopolitical tensions and market speculators.
Fintag says Shocking. Analysts in 2007 who said oil would reach USD100 were laughed out of the room. Now we are saying they were too cautious in their predictions.
Saturday's discussion about the UBS report, including the post on banker's compensation, led to some intriguing email from people who must remain nameless because of their professional affiliations.
Included amongst the feedback was the phrase "Creating Fake Alpha," which I had first read in John Cassidy's Portfolio column earlier this month, titled The Banker's Bailout:
"Then there is the central and controversial issue of how to pay people who work for financial firms. In blowup after blowup, compensation schemes based on short-term performance have encouraged traders, division heads, and C.E.O.'s to act recklessly.
In the typical case, a trader or executive places a bet that pays off immediately—or soon enough to increase the individual's bonus or stock-options value—but exposes the firm to long-term dangers.
Examples include Merrill's decision to step up its production of mortgage securities just as the outlook for the real estate market darkened and Bear's refusal to keep an adequate reserve of cash on hand. Earlier this year, Raghuram Rajan, a former chief economist at the International Monetary Fund, referred to such behavior as “creating fake alpha—appearing to create excess returns but in fact taking on hidden risks.” ...
Fintag says Back to this old chestnut again. What is alpha? Well for hedge funds it is beta.
Deutsche Bank AG suffered its first quarterly loss in five years as global financial turmoil heaped more than $4 billion in writedowns on the bank and market ructions put a brake on earnings.
The bank said on Tuesday it had slipped to a pretax loss of 254 million euros ($398 million) in the first three months of the year from a 3 billion profit a year earlier, marking its worst quarter since the collapse of the dot-com bubble.
Deutsche had been seen as one of the winners in the crisis that forced Swiss rival UBS and Royal Bank of Scotland to turn to shareholders to raise cash. Even Europe's top insurer Allianz SE has been affected.
Fintag says I'm sorry.
Tuesday is firing day so for many at DB it will be a tense time.
GlobeOp Financial Services (GlobeOp), a provider of business process outsourcing and other services to the hedge fund industry, reported first quarter 2008 revenue growth and adjusted operating profit continued to be strong.
In its first interim management statement for the first quarter, it reported assets under administration increased to $100bn at 31 March 2008 from $97bn at 31 December 2007. Aggregate investor redemptions in clients' funds exceeded subscriptions in January. Both February and March reported positive net subscriptions.
GlobeOp reported the current volatile market environment is expected to bring opportunities in the long term. It said the volatile market could have a negative near-term impact on hedge fund industry growth.
Fintag says Imagine that. Global Cockup has come of age. Administration is the new black.
DOMINIC LAWSON: BACK WITH A VENGEANCE... THE POLITICS OF ENVY
If there is a bloody Bolshevik revolution in this country, I think I can guess the title of the inflammatory pamphlet which will be waved by the people putting the wealthy up against the walls and shooting them. It will not be the Communist Manifesto. It will be the Sunday Times Rich List.
The 2008 edition, published a couple of days ago, was more eye-poppingly voyeuristic than ever: 110 pages of non-stop salivation over fortunes which the rest of us could only dream about. It's almost enough to make a saint envious - which is where the Archbishop of Canterbury comes in.
A couple of days ahead of publication of this Book of Mammon, Dr Rowan Williams was interviewed by the BBC's John Humphrys; Dr Williams told Mr Humphrys that, "The more you have a disproportion between what people are earning and what they appear to be worth, the more we have astronomical sums with no clear rationale behind them, the less credibility the whole thing has." The Archbishop of Canterbury added that this "disproportion" resulted in "a degree of envy and cynicism ... that leads people to feel alienated from the rest of society."
Of course, if commitment to virtue was more financially rewarded than commercial acumen, then priests would be paid greater sums than the most successful entrepreneurs - and the Church of England's bishops might be even able to pay for the palaces they only occupy as Grace and Favour mansions.
Fintag says I have recently started to dress down and buy clothes from Gap. It is the way forward unfortunately.
HBOS is, as expected, raising £4bn from a rights issue of new shares. But the total amount it is raising from issuing shares is about £600m more than that, because it is also proposing to pay its first half dividend in shares.
Branches of Bank of Scotland and Halifax in Edinburgh It is also conserving precious capital in a further way by reducing the proportion of its earnings that it pays out in dividends from 46% to 40%.
Fintag says Alliance & Leicester? Barclays perhaps? Time to dilute the existing shareholders ...
PRIME BROKERS AND CUSTODIANS VIE FOR HEDGE FUND MANDATES
The collapse of Bear Stearns last month added urgency to the fight between prime brokers and custodians for hedge fund mandates.
There has been increasing convergence between these previously distinct service providers.
On the prime brokerage side, Goldman Sachs, Morgan Stanley and UBS have started to offer fund administration services. Custodians, on the other had, are busy trying to roll out prime brokerage services.
Fintag says The only winners are Goldman and Stanley. They are the biggest and best. The rest are also rans.
About 5 per cent of people are sociopaths. They will lie, cheat, stab you in the back, maybe even steal from you and feel no remorse.
In the past year I've done due diligence on several hedge funds, deals, companies, etc, and invariably uncovered lying - inflated returns and exaggerated résumés. The chief executive of a company trying to raise money told me he was 46 when in fact he was 66. A head of a micro-cap company checked himself into a mental institution on the day earnings were to be released. It turns out that bond investors had given money directly to the chief executive instead of to the company, as they had thought.
Most hedge fund investors are familiar with the refrain: “Don't worry - this month is looking great. Maybe you should put more money in.” This means the hedge fund manager is about to announce he is down 10 per cent for the month
Fintag says The FT employs anyone these days ...
EX-FED OFFICIAL: BEAR DEAL 'WORST POLICY MISTAKE IN A GENERATION'
The Federal Reserve's moves to prop up Bear Stearns Cos. will come to be seen as “the worst policy mistake in a generation,” the Fed's past head of monetary affairs said.
The action is comparable to “the great contraction” of the 1930s and “the great inflation” of the 1970s, said Vincent Reinhart, a scholar at the American Enterprise Institute, who retired from the Fed last fall.
Fintag says So what were they expected to do? Let it go down and cause a world wide financial melt down?
Sovereign wealth funds grew to $3,500bn (£1,750bn) last year, putting them on track to surpass the entire economic output of the United States within seven years, according to a new study.
While China remains the operator of the largest fund at $1,200bn, the fastest-growing pools of capital are controlled by previously overlooked regimes in Nigeria, Oman and Kazakhstan.
In total, the world's sovereign funds have managed 24pc compound annual growth over the past three years.
Fintag says Maybe I should forget trying to get a green card. Looks like I need to join an SWF. I always fancied being an imperialist.
The chief executive officer of the California Public Employees' Retirement System (Calpers), the biggest U.S. pension fund, said on Monday he would retire, days after its chief investment officer said he would step down.
CEO Fred Buenrostro, said in a statement late on Monday he would leave the fund, best known as Calpers, which manages roughly $240 billion, to pursue private sector opportunities.
News of Buenrostro's pending retirement after six years as the fund's chief executive comes less than a week after Calpers said Chief Investment Officer Russell Read was resigning to pursue environmental investments.
Fintag says Should we be concerned? Well I am.
HEDGE FUND SAID TO RECEIVE EMERGENCY LOAN FROM FORTRESS
The Fortress Investment Group is riding to the rescue of a hedge fund that sought to profit from betting on fine art and real estate, according to The New York Post.
SageCrest, a $650 million fund, is set to obtain a $150 million financing line from Fortress to stave off an April 30 default of its credit facility with Deutsche Bank, The Post reported citing unnamed sources.
The fund has seen the value of its assets drop precipitously as it struggles with the mire of the credit markets. Separately, SageCrest is closing in on a settlement of a year-long fight with Christie's, the auction house.
Fintag says Good to see alternatives helping themselves out. If JP Morgan and Bear Stearns can do it then so can Fortress and SageCrest.
When Federal Reserve governors meet today, they should consider that solutions to their twin challenges - a flagging economy and systemic moral hazard in financial markets - have common roots in a stable dollar. One of the primordial lessons of economic history is that sound money is a necessary condition to promote long-run prosperity and maximal growth. Moreover, a stable currency and low inflation lessen the need for complex hedging vehicles which can be leveraged to harmful effect in volatile markets.
Unfortunately, with total first quarter job losses up to 232,000 and the University of Michigan Consumer Sentiment Survey at its lowest level since 1982, fed funds futures indicate a strong likelihood of a cut of 25 basis points in the fed funds rate. But will yet more interest rate cuts help the economy or lower the problem of moral hazard?
Fintag says That is what the remit of the FED is. To keep the currency strong. Bernanke sees it otherwise.
So what does the US do? It has to put up interest rates. Of course as a traveler, I like a weak dollar.
5 comments
SoapWatcher said ...
Nice to see GLG-Enders back on the telly........
29 Apr 08 - 13:30 gmt
anonymous said ...
Fintag, are you not worried about a writ from a tall man whose name rhymes with Canny (even if he isn’t)
29 Apr 08 - 13:30 gmt
Finbar said ...
This GLG pilot episode is completely made up - imagine that though, a real hedge fund manager toughing it out with an ex Prime Broker....oh that is what is already happening at GLG...
29 Apr 08 - 14:36 gmt
anonymous said ...
Guys, i'm revising for exams... Can someone kindly tell me why you invest in options? Is it to hedge risk? thanks
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