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Posted
Apr 25 2008, 01:46 AM
by
Jon Markman
Rating:
Every frat house manager knows that if you want to end a party, you take away the keg. And that’s pretty much all you need to know about why the stock market is so sluggish this year.
The banks have sharply cut back on the credit they’ve allocated to hedge funds, making less money available to purchase stocks and bonds of all stripes. Less borrowing = less buying power. It's pretty simple.
The latest evidence of this action has come from reporters at the Financial Times, who say they’ve discovered that the most leveraged funds are now borrowing no more than five times their asset base -- down from at least 10 times their base six months ago. That means a $100 million hedge fund that was buying up to $1 billion worth of stocks a year ago now can only buy less than $500 million worth. That's a big difference.
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Posted
Apr 21 2008, 01:25 AM
by
Jon Markman
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Last week’s stunning 5% advance in the stock market is likely to have one consequence that credit-starved sensitive businesses won’t like: It has eroded the likelihood of further cuts in interest rates by the Federal Reserve when its Open Market Committee meets next week.
Despite a rise in joblessness, decline in housing activity and spate of bankruptcies, the futures markets and even dovish Fed governors are now expecting the central bank to stand pat for the first time in six months.
This is something of a shocker when you consider that the odds of a cut of a half percentage point were extremely high just two weeks ago. Now traders who bet on the likelihood of cuts don’t even consider it likely that the Fed will cut by a quarter of a percentage point. If the economy really is on solid ground now, just because stocks are up, it sure will be a surprise to businesses who are seeing more dramatic sales and profit declines than they can recall in years. We’ll learn more on Tuesday and Thursday mornings when existing and new-home sales data is released, and on Thursday afternoon when continuing jobless claims for April are released, but already the news from corporate America is grim.
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Posted
Apr 04 2008, 07:55 PM
by
Charley Blaine
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There are enormous amounts of chatter about whether the markets have bottomed.
So, what's the evidence?
The market itself. Down as much as 18% in January from its Oct. 9, 2007 all-time closing high, the Dow Jones Industrial Average's loss has been trimmed to 11%. The Standard & Poor's 500 Index, briefly down 20% on March 17 from October in the turmoil over Bear Stearns, is now off 12.4% from its October peak. And the Nasdaq Composite Index's loss from a peak on Oct. 31 has shrunk from 25% on March 17 to 17% on Friday. OK, let's turn the thought around. The Dow is up 8% from its lows in January. The S&P 500 and the Nasdaq are both up 9% and 10% off their lows on March 17. Lastly, the S&P 500 moved above its 50-day moving average on March 24, briefly dipped under it and has moved above it again. Moreover, the moving average has started to rise for the first time since November.
The Federal Reserve. Ben Bernanke & Gang have made it clear they won't allow the financial system to collapse. That was the result the Fed and many on Wall Street had feared would happen if Bear Stearns had been forced to file for bankruptcy protection. Instead, Bear Stearns has agreed to be acquired by JPMorgan Chase
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Posted
Mar 25 2008, 03:58 PM
by
Charley Blaine
Rating:
Al Copeland died on Sunday. You might not know the name. In Louisiana and certainly around New Orleans, he was about as well known as anybody both for the chicken you can get at Popeyes Famous Fried Chicken, the chain he started, and for his lavish, complicated and exuberant lifestyle.
He liked getting married. But all four of his marriages ended in divorce -- often acrimoniously. He liked Christmas. His house along Lake Pontchartrain in Kenner, La., was so lit up with lights at the holidays that airline pilots would use it to line up their approaches to the airport.
He liked fast cars and fast boats. He carried on a fun feud over the decor of one of his restaurants with no less than Anne Rice, the author of "Interview with the Vampire."
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Posted
Jan 18 2008, 01:09 AM
by
Jon Markman
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If you’re wondering why the sovereign wealth fund of Singapore has invested $15 billion in faltering U.S. and European banks in the past two months, you’re not alone. Politicians in Singapore are apparently puzzled, too.
The Singapore Parliament is scheduled to open its first session of the new year at 1:30 p.m. on Jan. 21, and according to a document that I obtained today, the very first question from a parliament member to the government will focus on this issue.
The “order paper” says member Inderjit Singh will ask the minister of finance: “A) What is the rationale for the billion-dollar investments by GIC and Temasek Holdings in distressed banks like UBS and Merrill Lynch; (b) whether it was too early to make such investments especially since the full effect of the sub-prime crisis has yet to be quantified; and (c) whether he can assure the House that Singapore will not lose the money pumped into these two banks or its standing internationally.
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Posted
Jan 10 2008, 01:18 AM
by
Matt Koppenheffer
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The turbulence at the top on Wall Street continues. Bear Stearns will be sporting a new CEO now that Jimmy Cayne has announced that he is stepping down from the position. Cayne is now the third major Wall Street firm with a new chief, following the shake-ups at Merrill Lynch and Citigroup.
It doesn't come as all that much of a surprise that Bear would make a change -- along with Merrill and Citi, the firm and its stock have been among the worst hit by the recent market turbulence. Unlike some of its other competitors, though, underperformance at Bear wasn't as localized to the debt markets, suggesting that there may be some bigger underlying problems
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Posted
Dec 21 2007, 11:15 AM
by
Matt Koppenheffer
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In turbulent times like these there are plenty of big signs that things are bad. Take the massive write-down that Morgan Stanley announced earlier this week. When a major financial institution, and a savvy player at that, takes a loss of that magnitude it's not hard to recognize that there's a storm raging. Sometimes, though, it's little things that can show the direction that things are headed. Wednesday's front page of The Wall Street Journal's Money and Investing section, for instance, sported an advertisement for Barclay's. In good times these adverts typically talk about a firm's success with M&A activity or conducting IPOs. This particular one was focused on Barclay's capabilities working with companies going into and coming out of bankruptcy. In the stories in that section, you could've also found some more obvious signs of the times like UBS' fight to back out [subscription required] of a $1.5 billion financing or Cerberus trying to wiggle out of a $4 billion acquisition.
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Posted
Dec 14 2007, 03:23 PM
by
Matt Koppenheffer
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Lehman Brothers reported its fourth quarter and full year earnings yesterday. Interestingly, the earnings -- which were pretty darn good considering what's been going on -- didn't get or create nearly the hullabaloo that the massive, stomach churning losses at other Wall Street firms stirred up. Well allow me to take a moment: nice quarter fellas. The problem is -- nobody's interested right now in believing that a Wall Street firm is doing something right. It's not hard to blame them -- finance firms seem to be hitting a wall all at once and the result has been the evaporation of tens of billions of dollars of shareholder value.
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Posted
Oct 30 2007, 03:16 PM
by
Matt Koppenheffer
Rating:
So after he oversaw $8 billion-plus in losses at Merrill Lynch and shopped a merger with Wachovia without consulting his own board, Stan O'Neal is officially out of the CEO spot. At least he'll have plenty of time to tweak his golf game now. Oh no, wipe away those tears -- ol' Stan, he won't be on the ramen noodle diet any time soon.
While the troubles of other struggling firms like Bear Stearns, Citigroup, and Bank of America have faded into the background to some extent as Merrill's shenanigans have taken center stage, they're not gone. Even Merrill, which may elicit the reaction of "how much worse can it really get" might get a bit worse. Deutsche Bank analyst Mike Mayo, who's been really turning the screws on the management teams at the banks, suggests that new management might get even more conservative and write off as much as $4 billion more.
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Posted
Oct 25 2007, 12:28 AM
by
Jon Markman
There's an awesome story in the Wall Street Journal tonight about the guy who appears to have been a key driver of Merrill Lynch's disastrous decision to become No. 1 in the underwriting of collateralized debt obligations, or CDOs.
The story explains the birth of CDOs and how they were sold as a way for fund managers to obtain more dividend income with just a little extra risk during the mid-2000s when Treasury bill yields were low. It tells the tale through the perspective of pioneering salesman Christopher Ricciardi. The story explains how the exotic derivatives -- which heap leverage on top of leverage on top of leverage -- moved down the food chain from smart-money managers in Manhattan who may have really understood the risks they were taking, to European and Asian managers who didn't really understand them very well, and finally, near the end, to individuals who really didn't have a clue.
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