Archive - Oct 9, 2009

For everyone who has forgotten the risks associated with throwing billions of new capital into BRICs, the following new video highlighting the plight of Russian investment manager Hermitage Capital should promptly remind just why authoritarian, investor unfriendly countries may merit a second thought as a place to park your LPs' hard earned money.

By using our balance sheet, the Federal Reserve has been able to overcome, at least partially, the constraints on policy posed by dysfunctional credit markets and by the zero lower bound on the federal funds rate target. By improving credit market functioning and adding liquidity to the system, our programs have provided critical support to the financial system and the economy. Moreover, we have carried out these programs responsibly, with minimal credit risk and with close attention to the exit strategy. Our activities have resulted in substantial changes to the size and composition of our balance sheet. When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration. - Chairman (or is that Printman) Ben Bernanke

If there is one sector that is really hurting despite return chasing in all categories (money being thrown at equities, bonds, and commodities without regard or prudence as Rosenberg has pointed out), it is private equity. Indeed, while credit has thawed in general, investors are still completely shutting out the 5x+ leverage transaction world: the bread and butter of the LBO business model. For a sober look at the desolation in the PE landscape, even as funds rush to raise more billions in dry equity powder which sits at banks collecting 1%, consider that YTD only $33 billion in 654 PE deals has been disclosed a 60% drop from the 1,532 deals done through Q3 in 2008, and not even comparable to the heady days of 2007.

"So far, it would appear that the “buying” has come more from program trading, short-covering and institutional portfolio managers putting cash to work. This is the big risk for the bears — what if Ma and Pa Kettle capitulate?"

"The amateur investor is going to get hit badly again because they're pouring money into these funds. Some of these funds managers I do not think are experienced enough to handle some of the distressed stuff they're buying and they're going to get burned." - Carl Icahn

• Unemployment will supress U.S. consumer spending, survey shows (Bloomberg)
• California bond sale pushes munis down, lifts yields most since June (Bloomberg)
• Fed begins testing reverse repo trades (FT), also Fed said to consider clearing banks, facility to drain reserves (Bloomberg)
• Thomson CDS settlement snarls Europe restructurings (Bloomberg)
• The most hated rally in Wall Street history (Ritholtz)

• Asian stock markets rose Friday on US gains, with resource and energy stocks leading.
• Bernanke says Fed ready to tighten monetary policy when economy improves.
• Dollar rises for first time in 5 days after Bernanke says Fed ready to 'tighten' policy.
• Initial Jobless claims in US decrease 33,000 to 10-month low of 521,000.
• Japan Machine Orders increased 0.5% in August, rebounding from record low.
• Treasuries decline, set for weekly drop, after Bernanke signals tightening.