Futures Down Triple Digits on Hedge Fund Collapse
Yet another shoe(s) has dropped, as several large hedge funds imploded, leading to global bourses being pressured overnight.
According to the Times of London, several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility.
Note that the British Financial Press has had a much better handle on the credit/derivative situation than have much of the American press. I'm not sure if its the distance, or perhaps a greater degree of objectivity. My own pet theory is that overseas editors are less impacted by the various scolds who work the refs, i.e., complain the the media is too pessimistic . . .
Global markets dropped on the news. The FTSE 100 was done almost 2%, while the XETRA-DAX and the CAC40 each lost more than 2.25%. Asia markets were down even more, as the HANG SENG dropped -4.79%, and Japan's NIKKEI 225 fell 3.33%
Dow Futures were off 150 points as of this writing, with Nasdaq off 23 and SPX futures lower by 15.
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More later . . .
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Sources:
Hedge funds on the brink as US Federal Reserve cash fails to ease crisis
The Times, March 13, 2008
Suzy Jagger
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3542723.ece
Despite the Federal Reserve's efforts Wall Street fears a big US bank is in trouble
Siobhan Kennedy and Suzy Jagger
The Times, March 13, 2008
http://business.timesonline.co.uk/tol/business/economics/article3542775.ece
Carlyle Capital Nears Collapse
PETER LATTMAN
WSJ, March 13, 2008; Page C2
http://online.wsj.com/article/SB120537974320632835.html
In Dealing With Bear Stearns, Wall Street Plays Guardedly
KATE KELLY, SERENA NG and JENNY STRASBURG
WSJ, March 13, 2008; Page C1
http://online.wsj.com/article/SB120537606195632655.html
Dow Retreats As Doubts Rise Over Fed's Move
LIZ RAPPAPORT and PETER A. MCKAY
WSJ, March 13, 2008; Page C1
http://online.wsj.com/article/SB120537790851532753.html
Thursday, March 13, 2008 | 07:31 AM | Permalink
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Comments
No problem - can't Ben bail them out also?
Free money for everyone who acts badly
Posted by: SM | Mar 13, 2008 7:55:58 AM
That must mean, here comes Uncle Ben to the rescue of the u.s. markets again. There is no way we can let our stock markets go down past those January lows! Why would we want to let natural market forces determine price? lol
Posted by: JustinTheSkeptic | Mar 13, 2008 8:00:16 AM
BR:
So I guess that we can expect the FED to put in an Emergency Rate cut to once again try to prop up the Stock Market at the expense of inflation. Oil to $130, Gold to $1200. What will stop this FED Wreck?
Hey, but core inflation is only 2%. Right! That's why the post office rates and DOT fees are jumping exponentionally for 2008 along with commodities. Maybe they should be limited to CORE rate increases, like Soc Sec. Like that would ever happen???
Posted by: trackerman | Mar 13, 2008 8:01:44 AM
This is Dee Leverage..the Prophet of Margin Calls...Ben cannot help you anymore. He is getting a call from me sometime today. He better answer his phone. Hope your flatscreens are paid for folks. Your Uncle Ben (am I'm not talking rice) is getting a margin call today. Put up some more capital America.
On a happier note, my trip to China is all planned for the Olympics. Oh and the Carlyle guys were nice about their problem...I'm getting a gold watch from them.
Posted by: Dee Leverage | Mar 13, 2008 8:05:55 AM
How do we know who really caused this? They'll be the only ones leaving the country. They'll be the only ones with the means to leave the country.
Time to freeze some accounts/assets.
Grover Norquist openly stated his plan to destroy the US government (that's us, folks), and we elected his boys anyway.
Did we think these guys were kidding?
The uglyness has just begun.
Posted by: Marcus Aurelius | Mar 13, 2008 8:08:19 AM
Could it be the journalists over there understand what's going on?
Posted by: Len | Mar 13, 2008 8:46:04 AM
An interesting take on this squeeze on Carlyle and other hedge funds being--somewhat paradoxically--caused by the Fed's action this week. (See Alea & ftalphaville for reference to BBC's Robert Peston.) The scenario being as follows: (1)the Fed's shows willingness to exchange treasuries (i.e cash) for illiquid securities (MBS, etc.). This offer is made to prime dealers. (2.) These same dealers are holding lots of these illiquid securities as collateral for loans to hedge funds. (3.) Eureka! Prime dealers figure out they can call loans to hedgies, seize collateral and turn it into cash thanks to the Fed.
Posted by: PureGuesswork | Mar 13, 2008 8:46:40 AM
You miss the point completely.
The US media is pessimistic, shallow, generally uninformed but pretending not to be, and frequently uses people for quotes who have hidden agendas motivated by profit, or knowingly put ignorant but well presented people on just to fill air time or fill print space with known names.
Even here in TBP, there are content and tone problems. Content often includes a headline, a graph, and a scare with no depth other than a general sense of 'I told you so' and 'Booo ... '. Implications with no information abound. Since this is a blog that is supposed to be a credible source and is heavily read, the frequent substitution of appearance for information requires challenge.
If I want information, I usually go to FT.com. Reliable information on a regular basis doesn't exist here or most anywhere in the US media. In the US media and here, you see a repetitive disgorgement of 'common beliefs' and 'semi informed opinion' substituting as gospel and unimpeachable fact or incredible insight.
I believe there is integrity here and no attempts are being made to jawbone the market downwards via a parade of unending scare stories. I assume negativism without explanation or depth is just your way of communicating. Or maybe people are expected to pay for it.
Contrast this with Jim Rogers on CNBC. Immediately after the Fed plan was announced and equity price increased, Rogers chided the financial community into not allowing a cleansing recession to occur. Only later did he mention that he is short financials. This means a strong market at this time would cause him big financial problems. By implication, he would like to injure the majority financially just to make a few bucks in a falling market. Shorting is ok. Using personal influence to destroy the market for profit is immoral.
If you don't wanted to be chided for excessive pessimism, then add depth and explanation to stories, rather than assuming splashy graphs and a headline are a substitute for actual information.
Posted by: cinefoz | Mar 13, 2008 8:50:15 AM
Well, it still gets down to the fact that the national government is addicted to deficit spending...there was a commercial recently about a fellow who was deeply in debt, trying to keep up appearances with the Joneses...he had a nice house, nice car, etc. but all of it was bought on credit...in one scene he says as he is cutting his beautiful lawn on his riding mower,"somebody please help me!"...I know you've seen it.
We will have the biggest budget deficit in history this year...was in the news this last week.
The answer, at least the start, is a balanced budget amendment to the constitution. Without it, the dollar won't ever regain respect as the rest of the world sees us for the "big hat, now no cattle" that chronic overspending has brought us to....
Posted by: Al Greenspan | Mar 13, 2008 8:52:49 AM
Could it be the journalists over there understand what's going on?
Not exactly. U.S. journalists have an inherent fear of using phrasing which could be construed as challenging orthodoxy. If you challenge your editor in a newsroom, you get in trouble with the editor. It's much better to keep head down, profile low. The same attitude carries into the way news stories are selected, framed and written. For this reason, the U.S. news media is a lagging indicator of what is actually happening in the U.S. The financial press is even worse because of its incestuous relationship with a bull economic market (ie. bear markets cause ad sales and reader interest to decline, ergo less $$$ for news outlet and parent corp.).
Posted by: Douglas Watts | Mar 13, 2008 8:55:16 AM
Ha, I'll buy on this news! It's been in the news for months that Carlyle has been failing. That's already priced into the market. Scaring this up now is pure manipulation.
Posted by: quick | Mar 13, 2008 8:56:53 AM
Cinefoz,
"A strong market would cause Jimmy Rogers big financial problems?"
That's the funniest damn thing I've read all week. I believe Jimmy will be just fine, thank you.
Go get a Big Chief tablet and some crayons.
Have a nice day and play nice.
Posted by: Ross | Mar 13, 2008 9:06:03 AM
I have been doing pretty well with the dollar collapse and commodity bubble. But I know that in the end we are all going to suffer, big time. So I can't take too much comfort. You can run but you can not hide. This is a manufactured crisis to destroy the dollar and get people to accept the new currency (see BP's earlier post on Volcker).
Posted by: pft | Mar 13, 2008 9:10:59 AM
If you don't wanted to be chided for excessive pessimism, then add depth and explanation to stories, rather than assuming splashy graphs and a headline are a substitute for actual information.
Posted by: cinefoz | Mar 13, 2008 8:50:15 AM
_____
And if the "actual information" does not conform to your predetermined opinion, rail against it. Challenge facts with rhetoric. Swiftboat reality. Cigarettes do not cause cancer. Iraq has WMDs. The price of RE never goes down. I want a strong dollar. Deficits don't matter.
Why do you hate reality?
Posted by: Marcus Aurelius | Mar 13, 2008 9:13:32 AM
At this moment, I think a commentator named Ali Velshi on CNN is an excellent example of a shallow purveyor of 'what everybody knows' passed of as cutting edge information. I don't watch Fox so there are probably others who share his position.
Regarding Ali Velshi, When the stock market bubble was obvious and a terrible accident waiting to happen, I clearly remember him postulating in an uncommitted way (probably for legal reasons) "It just keeps going up. Maybe you should think about getting in before it's too late". Now you have obvious stories about the bad markets that just say what everybody else has already said about what happened yesterday and before. No insight. No analysis other than repeating old news.
Posted by: cinefoz | Mar 13, 2008 9:18:33 AM
Cinefoz--hate to break it to you, but everyone talks their book, even you. Then the market does what it has to do, no matter what Rogers says on TV or you or Barry post here. The problem with the media is that they don't understand what they are reporting. If they did, the pay is a few multiples better on the trading side so bye bye journalism. Case in point is Dylan Ratatatat. Talks fast and uses all the trader jargon beautifully but would you let him manage your 401k??? Didn't think so. He is showbiz not street smarts, just like silly senor Cramerica...
Posted by: lurker | Mar 13, 2008 9:18:42 AM
this blog is meant to get people thinking not the end all of detailed research. this is a free site. i think barry does an excellent job of presenting topics we need to discuss but he is basicly doing it for 'free'......................journalist and media outlets make big bucks putting out fluf.
Posted by: spiny mcdob | Mar 13, 2008 9:26:35 AM
Cinefoz : You're not the who should be speaking of depth after the vacuous nonsense you afflict readers with. As to Jimmy Rogers, he is merely reiterating points he has made for years. He doesn't have to talk his book.
I usually skip your posts and wil resume doing so.
Posted by: zell | Mar 13, 2008 9:27:07 AM
Let's talk about oil prices.
The price today is a function of scarcity, demand, the falling dollar, and speculator antics.
Commodity futures and leverage are complicated. I don't understand them, but I suspect that most of the price run up this year and late in 2007 had more to do with speculative demand than the falling dollar or scarcity of supple relative to end user demand. Far more.
Yet 'the falling dollar' is the common scapegoat in the headlines or paragraph 1. An understanding of commodity markets and speculative demand would be helpful in understanding the price of oil. Yet nobody wants to offer explanations about this. The stupid explanation works OK so why work any harder?
Posted by: cinefoz | Mar 13, 2008 9:30:11 AM
Now now kids, play nice!
Posted by: Barry Ritholtz | Mar 13, 2008 9:33:29 AM
I believe we will find a bottom of some sort when the market looses all remaining faith in the Fed.
One way for this to happen is of one of it’s many actions ends up being perceived by the markets as actually being harmful already in the short term.
If the BBC business editor’s suspicion that “that the banks' seizure of Carlyle's $20bn-odd in assets has actually been encouraged by the Fed's morgages-for-Treasuries offer" becomes common perception then the time may be near.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/
Posted by: Michael M | Mar 13, 2008 9:34:10 AM
>> Yet 'the falling dollar' is the common scapegoat in the headlines or paragraph 1. An understanding of commodity markets and speculative demand would be helpful in understanding the price of oil. Yet nobody wants to offer explanations about this. The stupid explanation works OK so why work any harder?
First of all, I don't understand what's "stupid" about the explanation that:
- Foreigners can't use their dollars for much else than buying oil, wheat, military equipment, and aircraft.
- Since they have so *many* dollars, you and I have to bid more and more dollars for that same oil and wheat.
Second of all, MS has tried on several occasions to describe how the oil game is rigged and how we should be looking not at contracts but storage. (Could be correct. I just don't know enough to get the balls to short oil.) So, don't say "nobody wants to offer explanations about this".
Posted by: wunsacon | Mar 13, 2008 9:43:49 AM
Barry - on your comment about British press. I think it's less that editors don't have to deal with scolds and more of a cultural thing. I'm an American, but I've lived in London for 6 years. The cultural default for Brits is pessimism. That's why they love and are completely annoyed by Americans. All that bloody optimism. So, basically, just take your pet theory one step further.
Posted by: MPH | Mar 13, 2008 9:43:54 AM
The idea that $4 a gallon gasoline and truck fuel and food and commodity prices increasing 30 percent since last summer will not have an effect on a consumer-based U.S. economy is a tad daft.
But this is what we are told.
Posted by: Douglas Watts | Mar 13, 2008 9:47:22 AM
wunsacon,
Re oil: I would like informed explanations by educated and experienced individuals. Not 'something that sounds reasonable' by nice people such as you who are just guessing. Or paranoid guesses by the tin foil hat set.
Posted by: cinefoz | Mar 13, 2008 9:48:50 AM
