Archive - 2009 - Blog entry

Yesterday's mini sell off has brought out the dip buyers.

There probably is a lot of back slapping going around at the Fed and Treasury Department these days as the markets have risen on a flood of liquidity.

What do you have to do to make $675,000 at Freddie Mac? Not much. Why is the gigantic piece of dead wood hiring big buck talent? Big money politics, of course.

NOTE: AFTER I WROTE THIS ADDITIONAL DETAILS CAME OUT: KARI GOT A $2MM BONUS AND A GUARANTEE OF $3.75MIL!!!!

It's amazing how a year after the worst financial crisis in post-war history, when hedge funds were closing the gates of hedge hell, things have not changed on Wall Street.

The price correlation between equities and bonds of late has some argue that typically, if equities are trending higher, then bonds would head lower, and yield would be higher, due to concerns of higher inflation. So, the fact that bonds and equities in general are both firm seems to beg the question - which rally would end first - equities or bonds?

"… excess savings flowing in from Asia and the reckless lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fueled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions." - Richard Posner

In the environment we're heading into, I prefer liquid asset classes over illiquid ones and I certainly would pick and choose my private equity and real estate funds more carefully instead of writing big checks to every large buyout fund. I'd make sure that my private equity managers are not glorified financial engineers who came from an investment banking background, but guys and gals with solid hands on experience restructuring companies from the bottom-up.

You may recall that the crude spread gap opened just a few weeks after Lehman Brothers failed and AIG required a capital infusion. During the super contago phase of late 2008 and early 2009, the spread was so ridiculously wide that the rate of return was close to 70% at one point of time.
Those few who had a role in taking advantage of the super contango ended up boosting the spot oil price back to a more normal relationship to the outer months.

It's not just rating agencies that are at the crossroads, but pension funds are at the crossroads too. We need a governance overhaul that introduces more transparency and a compensation system that rewards risk-adjusted returns. The status quo at rating agencies and pension funds is totally unacceptable.

This comes from the Department of I Should Have Known.

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead.

A few brave economists believe fiscal and monetary stimulus, as well as improved productivity, will help the United States bounce back stronger than anticipated, helping it to leap hurdles such as high unemployment, a soaring budget deficit and a beleaguered consumer.

If the budget deficit is $1 trillion per year, how much do we have to borrow? The answer is closer to $2 Trillion. The existing debt has to be refinanced too. Can this be sustained? Forever?

Bank of America has just over $8 billion in 90+ days past due compared to a little over $14 billion in Non-Accrual. So for every $1.00 they have on Non-Accrual they have $0.57 in potentially near-term charge offs. Naturally, not every...

We are in uncharted territory, so now more than ever, pension fund managers, board of directors and plan sponsors need to review their asset allocation more frequently, making all necessary adjustments as the environment evolves. Complacency and following the herd is highly irresponsible, ensuring mediocre performance over the long-term.