According to Bloomberg, Moody’s has altered investors to the possibility of a repeat of the 1998 Long Term Capital Management hedge fund crisis. We should be so lucky. As we have said before, the LTCM crisis has been widely, and in our opinion, mistakenly seen as a vindication of the workings of the financial system. […]
Read more...I am more than a bit late to this item, namely, an op-ed piece, “Our Risky New Financial Markets,” by Henry Kaufman in the Wall Street Journal on Wednesday. I’m puzzled at the lack of commentary on this article in the blogsphere. Kaufman, as chief economist of Salomon Brothers during its heyday in the 1980s […]
Read more...Nouriel Roubini, on his RGE Monitor, discusses the distinction between risk (variability in outcomes that can be estimated) and uncertainty (unknown or unmeasurable outcomes). Risk can be priced; uncertainty can’t (or at least can’t be priced by rational agents). Roubini argues that part of the panic in the markets stems from the fact that investors […]
Read more...This is priceless. The Wall Street Journal, in a page one story, “How Rating Firms’ Calls Fueled Subprime Mess,” tells us that rating agencies might have had more than a little bit to do with the problems in subprime. This is a new item? A page one news item? It would be a bigger news […]
Read more...Andy Xie, who until last year was Morgan Stanley’s chief Asia economist (he apparently made himself unpopular by being too candid about Singapore), gives a blunt critique of last week’s liquidity infusions by central bankers in “It’s time for central bankers to stop bailing out markets” in the Financial Times. Xie’s conclusion is that the […]
Read more...An excellent article by Willem Buiter (Professor of European Political Economy at the London School of Economics and formerly a member of the Monetary Policy Committee of the Bank of England and Chief Economist at the European Bank for Reconstruction and Development) and Anne Sibert (Professor and Head of the School of Economics, Mathematics and […]
Read more...Goldman, in a brilliant bit of legerdemain, invested (along with partners such as CV Starr and Perry Partners) $3 billion into its troubled quant fund Global Equity Opportunities. From its press release: Many funds employing quantitative strategies are currently under pressure as recent conditions have resulted in significant market dislocation. Across most sectors, there has […]
Read more...The Financial Times indicated today that European banks were willing to provide commercial paper only on an overnight basis to a relatively lengthy list of names they regarded as under stress. That is a dramatic departure from normal market operations. Accordingly, the European Central Bank has found it necessary to infuse funds for a third […]
Read more...If the Financial Times’ Gillian Tett were hit by a bus, I’d be in a lot of trouble. With all due respect to her colleagues, she is the best source of financial news. Today, in “Structured investment vehicles’ role in crisis,” Tett probes what went wrong in the credit markets last week. As others have […]
Read more...One sign that market conditions are, at least temporarily, on the mend: both the Financial Times and the Wall Street Journal have stories on moral hazard. If you have time for sermons, things can’t be all that bad. And in confirmation, Asian markets are up solidly as of this hour. Of the two stories on […]
Read more...I am sticking my neck out in this post, so if any readers disagree, don’t hesitate to speak up. We have seen the following over the last few weeks: concern about whether banks that have exposure to subprime can be trusted as counterparties; reports and rumors of losses at hedge funds (at a minimum, stat […]
Read more...The New York Times, among others, endeavored to shed more light on why quantitatively oriented funds like Global Alpha (down 26% YTD), Cliff Asness’s AQR (down 13% in August) and James Simon’s Renaissance Technologies (down 7% YTD) are doing so badly. Short answer: these funds rely on models that look at statistical norms, and these […]
Read more...An article in Wednesday’s Financial Times, Unbound, by Gillian Tett, discusses how trading in credit derivatives generally and in the iTraxx contract in particular has become more important than the bond markets. Because my brain is a bit fried due to jet lag, I will be brief and hopefully won’t oversimplify, although I will probably […]
Read more...Two major types of hedge fund strategies, namely event-driven (Newspeak for risk arbitrage) and statistical arbitrage (typically, very high volume trading to capture and correct anomalies in prices relationships in various markets, such as among stocks bonds, or derivatives, or across markets) are having trouble. It isn’t yet clear how far reaching these problems are. […]
Read more...The era of lax lending is inflicting damage on one of its biggest perps, namely, investment banks. Wall Street firms, overeager to win funding mandates from private equity firms, agreed to terms that were very much in favor of the private equity firms. And now the LBO firms are holding them to their financing commitments, […]
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