Monthly Archives: June 2007

New Yorker Article on Hedge Fund Performance and Replication

An solid article by John Cassidy in the New Yorker, “Hedge Clipping,” on the work of former equity derivatives trader turned academic Henry Kat, who researched hedge fund performance extensively and concluded 80% of them fail to earn their handsome fees (in industry jargon, whatever alpha they generate, which is the excess return due to […]

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Yet More Evidence That the Super Rich Are Getting Richer

An article in the Financial Times, “High risks see super-rich pull away,” reports on a Merrill Lynch/Cap Gemini study that concludes that the super rich ($30 million or more in investable assets) are getting richer even faster than the merely rich ($1-$5 million). The world’s 100,000 “super-rich” last year extended their lead over the merely […]

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UBS Charged with "Dishonest and Unethical" Practices Regarding Hedge Fund Clients

We’re shocked,shocked! The state of Massachusetts has filed a complaint that accuses UBS of giving kickbacks (without using that word) to hedge fund clients: cheap rent, personal loans at below-market interest rates, and other goodies. An interesting question is whether the charge regarding below-market rent referred to incubators. Some prime brokers will give fledgling hedge […]

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How Successful Will the SEC Investigations of CDOs and Bear Hedge Funds Be?

All the usual suspects are reporting that the SEC is planning to investigate the failed Bear Stearns hedge funds and CDOs generally. The Financial Times provides a succinct account: The Securities and Exchange Commission on Tuesday said it had initiated a broad-based investigation into the troubled subprime mortgage market. Christopher Cox, chairman of the SEC, […]

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"Carry trade threatens a deflationary global collapse"

Warning: this post is only for those with sound constitutions. Tim Lee, head of a financial economics consultancy, tells us in a Financial Times article what a carry trade unwind will look like (answer: very nasty) and what it would take to prevent it (the Japanese have to allow a high enough level of inflation […]

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Bear Stearns Updates

Either it’s a horribly slow news day, or the Bloomberg people are besotted with the Bear Stearns story. I imagine journalists enjoy schaudenfreude as much as the next guy. From late afternoon until now, even after the Asian markets have opened, the top story on its “Breaking News” section is, “Bear Stearns Enlists Mortgage Chief […]

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"Perils of Inflation Targeting"

We’ve been skeptical of inflation targeting, no doubt as a result of seeing Paul Volcker use monetary targets very effectively. Witness the proof of the pudding, namely, asset bubbles, deteriorating credit quality, and increasing inflation (at least in overall CPI, although core CPI is better behaved). But serious economists have only started looking into this […]

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Pimco’s Bill Gross Gives Dire Prognosis for CDOs

By way of background, Bill Gross is something of a legend in the fixed income world. He founded Pimco, one of the biggest and most highly respected fixed income firms, with nearly $700 billion under management. Gross is also its chief investment officer and is considered very savvy (and as important for the purposes of […]

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More on Rating Agencies and Risk in the Mortgage Market

Credit Slips highlighted a recent Hudson Institute paper by Joseph Mason and Joshua Rosner, “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” It’s an excellent piece of work, and I recommend it to anyone who wants to understand more about the risks of mortgage […]

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"BIS warns of Great Depression dangers from credit spree"

Ooh, when it rains, it pours. First Bear, now this. However, readers of this blog will know we have been posting for some time on rampant liquidity, inadequate risk premia, lax lending, and overvalued assets every where you look. We thank Michael Panzner of Financial Armageddon for pointing out this story from the UK’s Telegraph. […]

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More Bear Woes

The Wall Street Journal, in “Bear’s Stock is Acting Like It’s Name,” adds surprisingly little of substance to what’s already been reported on Bloomberg (see here and here), but the story’s downer tone is the last thing Bear needs at this juncture. One element that has been missing from the mot press coverage but picked […]

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Tell Me Why This Isn’t Tantamount to "Bubble?"

I’ve seen this factoid before, but lifted this recounting from Monday’s editorial in the Financial Times, “Why finance will not be unfettered“: According to the McKinsey Global Institute, the ratio of global financial assets to world output soared from 109 per cent in 1980 to 316 per cent in 2005. The value of the global […]

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Protectionism Lower in Countries With Larger Government Sectors

Dani Rodrik posted the findings of a paper by Anna Maria Mayda, Kevin O’Rourke, and Richard Sinnot that concludes that that public has less protectionist leanings in countries with a larger government sector (which presumably means more social services). Rodrik was surprised by their conclusion. I am surprised that Rodrik is surprised. Martin Wolf, the […]

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Conflicting Reports on Status of Bear Stearns Hedge Funds

Bloomberg is keeping up a rapid pace of stories on the Bear Stearns hedge funds. Bear has apparently found some buyers for the assets of its High-Grade Structured Credit Leveraged Fund, the one for which it put in place a secured credit facility to permit an orderly workout. This was not an official announcement by […]

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