by Parsimony Research on August 31, 2009
Apparently track records mean nothing…
Bloomberg: Cerberus to Raise New Funds After Investors Pull $4.77 Billion
Aug. 31 (Bloomberg) — Cerberus Capital Management LP plans to raise money in the fourth quarter to buy distressed companies and securities after losses on investments such as Chrysler LLC and GMAC LLC led to $4.77 billion in client redemptions.
The withdrawal requests, representing 60 percent of the $7.9 billion in its Cerberus Partners LP and Cerberus Institutional LP funds, came mostly from other managers who need to pay off investors, according to Mark Neporent, the New York- based firm’s chief operating officer and general counsel. Institutions and wealthy individuals are still looking to invest with Cerberus, which oversees $24.3 billion, including a $1 billion fund raised last month, he said.
“These redemptions are not a reflection of a lack of confidence, but a reflection of demands of liquidity” from the funds of funds that had placed clients’ cash with Cerberus, Neporent said in an Aug. 29 interview.
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by Parsimony Research on August 31, 2009
Bloomberg: China Stocks ‘In Deep Bubble,’ May Drop 25%, Xie Says
Aug. 31 (Bloomberg) — China’s economy isn’t “sustainable” and the benchmark Shanghai Composite Index may fall another 25 percent, former Morgan Stanley Asian economist Andy Xie said in an interview.
“The market is in deep bubble territory,” Xie, who correctly predicted in April 2007 that China’s equities would tumble, told Bloomberg Television.
The Shanghai index plunged 6.7 percent to 2,667.75 today, the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy. Xie said the index “should be 2000 or less.”
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by Parsimony Research on August 30, 2009
by Parsimony Research on August 29, 2009
Bloomberg: China Investment Investing Billions in Hedge Funds
Aug. 29 (Bloomberg) — China Investment Corp., the country’s sovereign wealth fund, is continuing to shift its investments away from cash and is investing billions in hedge funds and private-equity funds, Chairman Lou Jiwei said.
China Investment has invested “many times” the $500 million that CIC was reported to have placed in hedge funds and private-equity firms in June, Lou said today in an interview in Beijing. He said China Investment was also investing in fund-of- funds.
Lou said Beijing-based CIC’s performance this year “has not been bad” following last year’s 2.1 percent decline in its global investments. He didn’t elaborate. China Investment Corp. had $297.5 billion in assets and had 87.4 percent of its global portfolio invested in cash and cash equivalents at the end of last year, the fund reported earlier this month.
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by Parsimony Research on August 28, 2009
Comstock: Economy Built on Quicksand – August 27, 2009
The widely hailed economic recovery is built on a foundation of quicksand. The impending rise in third quarter GDP is based on massive government spending, a slowdown in the inventory deceleration, the cash for clunkers program and some misleading housing numbers. At the same time the most important drivers of a sustained recovery such as robust consumer spending, rising real wages and a real housing recovery, the necessary drivers of an economic upturn, are all missing from the recipe.
Consumer spending, which accounts for 70% of GDP, is likely to remain in the doldrums for some time to come. With household debt still near record highs, deleveraging will be a feature of the economy for an extended period. Household savings rates that previously averaged about 9% of disposable income is still at a paltry 4.2% after falling to zero in the previous boom. Since household net worth has collapsed, the need to replenish savings will continue to suppress spending. At the same time payroll employment continues to decline, unemployment is rising, hours are being cut and large numbers of workers are being forced into part-time work when they prefer to work full-time. Moreover, since corporate revenues are still in a nose dive as evidenced by second quarter reports, corporations will continue to cut their labor costs, thereby reducing household income even further. Adding to the pressure, credit conditions are still tight and only the most financially secure consumers have access to loans. All of these factors mean that consumer spending and income will remain under pressure and prevent any true recovery from gaining momentum.
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by Parsimony Research on August 28, 2009
Even though default rates continue to rise, Banks are putting leverage on top of leverage…
Bloomberg: Leverage Rising on Wall Street at Fastest Pace Since ‘07 Freeze
Aug. 28 (Bloomberg) — Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.
Credit Suisse Group AG and Scotia Capital, a unit of Canada’s third-largest bank, said they’re offering credit to investors who want to purchase loans. SunTrust Banks Inc., which left the business last year, is “reaching out to clients” to provide financing, said Michael McCoy, a spokesman for the Atlanta-based bank. JPMorgan Chase & Co. and Citigroup Inc. are doing the same for loans and mortgage-backed securities, said people familiar with the situation.
“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.
Federal Reserve data show the 18 primary dealers required to bid at Treasury auctions held $27.6 billion of securities as collateral for financings lasting more than one day as of Aug. 12, up 75 percent from May 6.
The increase suggests money is being used for riskier home- loan, corporate and asset-backed securities because it excludes Treasuries, agency debt and mortgage bonds guaranteed by Washington-based Fannie Mae and Freddie Mac of McLean, Virginia or Ginnie Mae in Washington. Broader data on loans for investments isn’t available.
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by Parsimony Research on August 27, 2009
A great interpretation of investor psychology / behavioral finance…
The Reformed Broker presents:
1. Denial (Late March/ Early April)
“Ha, another Bear Market rally…wait til the foreclosure/ new home sales/ confidence data comes in! Right back to 6500, maybe lower…bagholders”
“Dude, the stress tests are coming out next month. B of A may be done-ski. Sell the May 10 calls, you’ll never have to cover.”
2. Anger (Mid-April)
“What the f@&% do you mean the goddamn banks are cheap based on normalized earnings? They will never ever earn anything again, ever! Idiot!”
“You gotta be kidding me with these retailers running now. RETAILERS? Are you nuts? They’re FINISHED!”
“If one more consumer discretionary name rallies on a less-than-expected loss, I’m gonna kick this Bloomberg down a flight of stairs.”
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by Parsimony Research on August 25, 2009
Hussman Funds: Bernanke Sees A Recovery – How Would He Know? – August 24, 2009
Excerpt (click on the link above for the full version)
A good economist thoughtfully recognizes “general equilibrium” – resources moved to one place must be taken from somewhere else. Securities or monetary liabilities, once issued, must be held by someone in the economy until they are retired (the failure to recognize this is the basis for the “cash on the sidelines” fallacy). Instead, Bernanke’s economic research is a minefield of partial equilibrium analysis. Helicopter Ben is a lot like John Maynard Keynes, who wrote in his General Theory “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again, there need be no more unemployment.”
Solving economic problems, to our Fed Chairman, is as easy as throwing money out of helicopters. Not surprisingly, throwing money out of helicopters has been the basic core of his strategy during this crisis. This does not involve complex thought about debt restructuring, moral hazard, incentives, equitable distribution of resources, or other factors. All it requires is the three second tape playing in Bernanke’s head – “We let the banks fail in the Great Depression, and look what happened.” And then the tape repeats. Never mind that the cause of the upheaval was not the failure of banks per se, but the disorganized Lehman-style failure of banks. The tape isn’t long enough to encompass such nuances.
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by Parsimony Research on August 24, 2009
AP: Remember me? Wall Street repackages toxic debt
Excerpt (click on the link above for the full version)
Wall Street may have discovered a way out from under the bad debt and risky mortgages that have clogged the financial markets. The would-be solution probably sounds familiar: It’s a lot like what got banks in trouble in the first place.
In recent months investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that’s nearly identical to the complicated investment packages at the heart of the market’s collapse.
“There is a little bit of deja vu in this,” said Arizona State University economics professor Herbert Kaufman.
But Kaufman said the strategy could help solve one of the lingering problems of the financial meltdown: What to do about hundreds of billions of dollars in mortgages that are still choking the system and making bankers reluctant to make new loans.
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by Parsimony Research on August 21, 2009
We are a big believer in technical analysis at Parsimony Research…
Bloomberg: Charts Oust Ben Graham in John Hancock Technical Fund
Aug. 21 (Bloomberg) — John Hancock Funds is betting its money-management clients are ready for Bollinger bands, Moving Average Convergence/Divergence and the Relative Strength Index.
The John Hancock Technical Opportunities Fund, started this month by the Boston-based unit of Canada’s Manulife Financial Corp., is the second in the U.S. to rely solely on stock charts for investment decisions, according to data compiled by Bloomberg. It’s among the 10 most-popular of John Hancock’s 54 funds, attracting about $1 million a day, said Keith Hartstein, the company’s president and chief executive officer.
Technical analysis, ridiculed as “alchemy” by Burton Malkiel in his 1973 book “A Random Walk Down Wall Street,” is attracting investors after techniques based on profits and valuations failed during the worst year for stocks since the Great Depression. Elliott Wave International’s Robert Prechter and Ralph Acampora of Altaira Wealth Management SA, who use charts, warned investors to avoid equities in 2007 as strategists at the biggest Wall Street firms forecast gains.
“At the core of technical analysis is the study of supply and demand, but also the risk-control aspect of it, which a lot of other disciplines don’t necessarily use,” said Frank Teixeira of Wellington Management, which runs the John Hancock fund. “That’s why technical analysis is having a little bit more of a rebirth.”
All Cash
John Hancock Technical Opportunities, which has a minimum investment of $10,000, can shift all its assets into cash when the managers foresee a slump in stocks. Only one other U.S. mutual fund, the $8.6 million Huntington Technical Opportunities Fund begun in May 2008, uses technical analysis exclusively, Bloomberg data show.
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