Archive for October, 2009
Posted by Larry Doyle on October 28th, 2009 11:01 AM |
Fraud knows no boundaries.
I strongly believe we will see dozens of hedge funds, fund of funds, and other financial frauds revealed over the coming months. In fact, I addressed this likelihood last April in writing, “Low Tide Will Reveal Rats Scurrying Amidst The Garbage”:
Additionally, do not forget that many hedge funds suspended redemptions in the latter half of 2008. Ponzi schemes, like rats, only thrive given a steady source of food and water in the form new investments. Suspending redemptions is akin to a rat rationing its food supply. While plenty of those suspensions could be legitimate, it would be naive to think that all of them are.
What do we learn today?
Breaking news indicates that a German fund of funds, K1 Group, may very well be the next rat exposed by the global market meltdown. A legitimate fund of funds company allocates capital across a wide array of different hedge funds. We certainly know that did not happen with the funds feeding Madoff. What happened with K1 Group? (more…)
Tags: Bear Stearns relationship with K1, circular trading, fund of funds, German Based K1, hedge fund fraud, Helmut Kiener, K1 Group, K1 Hedge Fund Snared in Probe as barclays JP Morgan Face Losses, K1 management team, K1 Red Flag, who is Helmut Kiener, who is K1 group
Posted in fraud, General, Hedge Funds | 3 Comments »
Posted by Larry Doyle on October 28th, 2009 9:22 AM |
. . . would you be surprised? What would you do? What if the market declined by 20%? Would you be surprised? What would you do? How about if the market rose by 10% to 20%? Would you be surprised? I would.
The reason I ask these questions is an attempt to address the fundamental question as to what the market is telling us and what American consumers believe.
The equity market has traditionally been a reliable indicator of the future economy. The market provides a discounted valuation of future earnings. Those earnings drive companies and the economy at large.
As the market declines and prospects wane, businesses and consumers react accordingly. On the other side of the coin, as the market improves forecasting an improving economy, businesses and consumers react accordingly . . . until now. What is going on? (more…)
Tags: Consumer Confidence, consumer confidence retail sales correlation, current conditions, Economy, Employment, Equity Markets, expectations component of consumer confidence, future earnings, is the market overbought, is the market overvalued, job prospects, market, market vs consumers, stock market, The Short View by John Authers, what is market telling us
Posted in Consumer Confidence, Economy, General, markets | 6 Comments »
Posted by Larry Doyle on October 27th, 2009 8:33 PM |
Turning the corner? No more bailouts? You didn’t actually believe the wizards in Washington, did you? Why?
GMAC is back in line for another injection of YOUR money. Recall that GMAC was bailed out initially during the government takeover of GM. GMAC was then spun off in order for Uncle Sam to effectively provide taxpayer funded consumer auto loans and mortgages.
GMAC is not a public entity and thus not currently able to hoodwink investors and raise equity capital. What’s a cash strapped entity to do? Let’s play some more of that ‘bailout bonanza.’ The Wall Street Journal just reported on this developing story and writes, GMAC Asks for Fresh Lifeline:
In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.
The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 34% stake in the company could increase if existing shares eventually are converted into common equity. (more…)
Tags: auto finance, bailing out GMAC, further bailout of GMAC, GMAC, GMAC Asks for Fresh Lifeline, GMAC Needs another bailout, good money after bad
Posted in Auto Industry, General, General Motors, GMAC | 2 Comments »
Posted by Larry Doyle on October 27th, 2009 3:05 PM |
Market analysts and government officials would attempt to define overall confidence in the economy utilizing a variety of data. In my opinion, consumer confidence is ultimately a function of two factors: employment and housing.
While Uncle Sam has spent trillions of dollars backstopping various sectors of the financial markets and billions in economic stimulus, the size and scope of our employment and housing markets vastly overwhelm Uncle Sam’s ability to ‘prop them up.’ As a result, I am not surprised to see the monthly data on consumer confidence reflecting real weakness.
Bloomberg provides further insight on this topic in writing, U.S. Economy: Consumer Confidence Drops On Unemployment Concern:
Confidence among U.S. consumers unexpectedly fell for a second month in October, reinforcing the views of Federal Reserve policy makers who say household spending will be restrained by rising unemployment.
The Conference Board’s confidence index dropped to 47.7, trailing the lowest economist forecast, from a revised 53.4 in September, a report from the New York-based private research group showed today. A measure of employment availability slid to a 26-year low. (LD’s highlight) (more…)
Tags: Conference Board's confidence index, consumer confidence October 2009, deflation, Employment, employment availability, housing, Inflation, jobs, Paul Volcker, recession of early 1980s, stagflation, u.S. Economy: Consumer Confidence Drops On Unemployment Concern, Unemployment
Posted in Employment, General, Housing Crisis, Unemployment | No Comments »
Posted by Larry Doyle on October 27th, 2009 11:18 AM |
Dr. Doom agrees with Wall Street’s top fixed income manger? Who are these individuals and on what do they agree?
Both these individuals are Economic All-Stars here at Sense on Cents (see left sidebar). Nouriel Roubini (aka Dr. Doom) and Jeff Gundlach (aka Wall Street’s top fixed income manger) possess a contrarian view on the future of the U.S. dollar. While most analysts, economists, traders, investors, and speculators call for ongoing weakness in the greenback, Roubini and Gundlach believe the dollar will rebound and risk-based assets will retreat.
I addressed Gundlach’s views on this market driving principle on September 10th when I wrote “Jeff Gundlach of TCW Calling for Deflation and Dollar Rally”: (more…)
Tags: asset bubble, bubble, contrarian view, decline in value of dollar, defaults, dollar carry trade is driving the market, dollar rally, Dr. Doom, eliminations of dollars, greenback, Jeff Gundlach, Jeff Gundlach view on markets and dollar, macroeconomic trends, Nouriel Roubini, Roubini Says Carry Trades Fueling Huge Asset Bubble, TCW, the forest and the trees, Trust Company of the West, value of U.S. dollar
Posted in General, Jeff Gundlach, Nouril Roubini, U.S. dollar | 4 Comments »
Posted by Larry Doyle on October 27th, 2009 9:50 AM |
Are emerging markets now the teacher instead of the student? As such, are recent developments in select emerging markets signaling a turn in our markets? Let’s look closer and navigate this corner of our global economic landscape.
Recall that the global market turmoil of 1998 was precipitated by the devaluation of the Russian ruble. As that domino fell, global markets and economies reacted violently. Here in the United States, the meltdown in the broad market caused the failure of the hedge fund Long Term Capital Management. In hindsight, many believe the Fed-orchestrated takeover of LTCM by Wall Street banks set the table for the massive increase in leverage on Wall Street which led to the current crisis. However, what were the lessons learned in the emerging markets from the 1998 crisis?
Many emerging markets were effectively forced to take support from the IMF as a result of the 1998 economic meltdown. The IMF support came with many strings attached. Those strings were tied to strict controls and onerous burdens imposed on many emerging market governments. Having been forced to live under these burdens once, these governments do not want a visit from the IMF again. As such, they have done a much better job at getting their fiscal houses in order and keeping them in order. Many other governments primarily in the Western hemisphere, including the United States, should have done the same.
How is this playing out currently? (more…)
Tags: 1998 crisis, capital flows, emerging markets, flow of capital, governmetn support in developed economies, Governor Duvvuri Subbarao, IMF, India, india CentraL bank Begins Exit From Monetary Stimulus, inflation in emerging economies, International Monetary Fund, Long Term Capital Management, love of family, love of nation, LTCM, monetary stimulus, Reserve Bank of India, Russian ruble devaluation 1998, sacrifice, thrift, Wall Street, will Norway raise rates, withdrawing monetary stimulus in India
Posted in emerging market economies, General, International Monetary Fund | 1 Comment »
Posted by Larry Doyle on October 26th, 2009 2:02 PM |
Is the clock about to strike midnight for the Federal tax credit to support housing?
Uncle Sam has implemented a wide array of programs to support the domestic housing market. These programs include:
1. Mortgage modifications.
2. Massive funding support for Freddie Mac, Fannie Mae, and the Federal Housing Administration.
3. Increasing the loan limits on mortgages eligible for purchase by Freddie and Fannie in certain regions of the country.
4. Capital injections into a number of large banks and mortgage originators via the TARP.
5. An $8k tax credit for new home purchases.
Of all of these programs, most analysts believe the tax credit has had the largest positive impact. Why has that happened? In my opinion, the tax credit directly impacts the buyer while the other programs are an attempt to support housing but are as much or more supportive of the financial organizations than the homebuyers. (more…)
Tags: Freddie Fannie FHA, Housing Credit Will Likely Be Phased Out, housing tax credit, International Strategy and Investment, ISI, ISI Says, loan limits on mortgage purchases, mortgage modifications, socialized housing, TARP
Posted in General, Home Loan, Housing Crisis | 4 Comments »
Posted by Larry Doyle on October 26th, 2009 11:11 AM |
“Leave the gun, take the cannoli.”
The world of organized crime evokes thoughts of payoffs, extortion, racketeering, and wiretaps. Are regulators now utilizing tools previously relegated to infiltrating the backroom dealings of the underworld to discover illegal activities on Wall Street? Yes, they are.
The news that regulators are now employing wiretaps to investigate financial frauds on Wall Street is sending a chill through Wall Street in general and hedge funds in particular. Why do regulators feel the need to utilize wiretaps?
Recall from the SEC’s and FINRA’s own internal reviews of their handlings of the Madoff and Stanford frauds that the regulators were woefully deficient in tracking and stopping these frauds. One of the greatest regulatory deficiencies highlighted is the use of technology.
Many hedge funds have spent millions upon millions of dollars on technology. These tools allow these funds to move with cat-like quickness in allocating capital and seizing investment opportunities. As we are learning, not all of these movements would seem to have been executed in a legal and ethical fashion.
How quickly can the regulators move to develop the necessary technical capabilities to track hedge fund activities? Don’t hold your breath.
Jules Kroll addressed the capabilities of the regulators relative to the tools employed by hedge funds on a Bloomberg interview this morning. Prior to my sharing Mr. Kroll’s assessment of the regulators’ capabilities, who is Jules Kroll? He recently founded a new firm, K2 Global Partners, which will look to “provide specialized risk services and solutions” to a wide array of global clients. (more…)
Tags: financial frauds, financial scams, Hedge Funds, insider trading, Jules Kroll, K2 Global partners, KROL, leave the gun take the cannoli, Madoff, racketeering, regulatory deficiencies, Stanford, Wall street regulation usine wiretaps, wearing a wire, wiretaps, wiretaps on Wall Street
Posted in General, regulation, Wall Street | No Comments »
Posted by Larry Doyle on October 26th, 2009 9:33 AM |
“We’re in the moving business, not the storage business!!”
If I had a nickel for the number of times I heard that line on Wall Street, I’d have a lot of nickels. That statement would coarse across many trading floors to push salespeople to sell, sell, sell and sell some more.
The sales process on Wall Street is not supposed to be the ‘boiler-room’ operations as so often depicted in films and books. Wall Street sales is not supposed to be a mere “dialing for dollars.” Prior to engaging prospective clients, salespeople and sales managers are obligated to address certain requirements. What may they be? The two primary requirements are:
1. KYC, an abbreviation for “know your customer.” This requirement addresses the need to fully understand the client’s business, its source of funds, its investment objectives, and much more. This requirement is extremely important, but regrettably often not fulfilled. Instead of “KYC,” many salespeople and sales managers view customers more from the standpoint of “he has money, I like him.” Given that shortsighted view, Wall Street often violates the second cardinal rule of sales.
2. Suitability addresses the requirement that an investment product meets the objectives of the customer. Interpreting this requirement is not as easy as some may believe. Where is the line drawn? What product may fit? What products definitely do not fit? All too often, the topic of suitability is addressed after the fact rather than prior to sale. Why does this happen? (more…)
Tags: Back-Door Taxes Hit Americans With Public Financing In The Dark, boiler rooms on Wall Street, CDOs, corruption in municipal finance, disguising risks in investment products, know your client, know your customer, KYC, municipal finance, Salvatore Calvanese treasurer of Springfield MA, suitability, Wall street sales pressure, Wall Street sales process, We're in the moving business not the storage business
Posted in General, Wall Street | No Comments »
Posted by Larry Doyle on October 25th, 2009 1:44 PM |
Is the American public about to get a wider view into the relatively concealed world of Wall Street self-regulation? I believe so. The momentum towards real transparency is “heating up.” How is the temperature rising in the kitchens of SEC chief Mary Schapiro and her former colleagues at the Wall Street self-regulatory organization FINRA?
The widely read and enormously respected financial periodical Barron’s writes at length this weekend about a specific case which Sense on Cents has been addressing for the last few months. This case (Standard Investment Chartered v FINRA, NYSE Group, Mary Schapiro et al) is highlighted in Barron’s reporting of Suit Puts SEC Chief on the Hot Seat:
Did Securities and Exchange Chairman Mary Schapiro, in her former role as head of the National Association of Securities Dealers, approve a misleading proxy that helped boost her pay and those of other NASD executives?
I highlighted the points raised in the Barron’s article this past Thursday in writing “Nasdaq Sale: Why Would Schapiro and FINRA Execs Lie?”
I am heartened by Barron’s reporting. Why? I have written extensively about Ms. Schapiro and FINRA over the last ten months. I have been asked by dozens upon dozens of readers and friends as to why the mainstream media has not focused more attention on topics and questions which strike me as having enormous importance.
I believe the issues embedded in the questions I have raised are potentially explosive in terms of their impact on the entire financial regulatory structure in our country. Given their explosive potential, I believe many media outlets have not wanted to address them for fear of running the wrath of the power structure on Wall Street. That said, heat and pressure appropriately applied typically produce results. I believe the Barron’s article will go a very long way toward producing the much needed truth and transparency in our Wall Street regulatory structure. This development is outstanding. That said, the questions Ms. Schapiro and FINRA need to face go well beyond the topics addressed in the Barron’s article. What other questions must be fully addressed? I submit the following:
1. America deserves to know the full extent of FINRA’s internal investment activities. Did FINRA invest in Bernie Madoff as alleged in a lawsuit filed by Amerivet Securities v FINRA this past August? I submit from September 15th, 2009: “Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff.”
2. America deserves to know whether FINRA possessed material non-public information and utilized it in the liquidation of its own $647 million Auction-Rate Securities position in mid-2007. Those unaware should know that the ARS market was failing at the time. Additionally, federal judges have designated the sales and marketing of ARS as to have occurred in a fraudulent fashion. Thousands of investors with upwards of $160 BILLION in ARS remain unable to access their funds. FINRA was charged with protecting investors. They did anything but protect. I submit from May 21st, 2009: “U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s.”
If the specific case referenced by Barrons proceeds, Ms. Schapiro may very well have to recuse herself since the SEC, which she currently heads, would likely be involved in the investigation of FINRA, her former employer. As such, I repeat my question from a few months ago in regard to whether Ms. Schapiro would recuse herself. Her recusal would take real courage. I submit from June 4th, 2009: “How Courageous Is Mary Schapiro?”
If in the process of discovery and investigation Ms. Schapiro and her former FINRA colleagues are not cooperative in the public pursuit of truth and transparency, it may then very well be that President Obama and his financial advisers will be faced with an “Independent Investigation Required” much as I had written on April 21st , 2009 and repeated on May 21st, 2009 in writing “Mary Schapiro Still Not Being Questioned; Independent Investigation Still Required.”
As the temperature rises in Ms. Schapiro’s kitchen, Sense on Cents will continue to monitor developments very closely and continue to press for real transparency in the process.
LD
Tags: Barrons, Barrons article on Mary Schapiro, FINRA investement portfolio, finra liquidation of ars, FINRA proxy statement, FINRA relationship with Madoff, Mary Schapiro, Mary Schapiro tenure at FINRA, merger of NASD and NYSE Regulation, NASD sale of Nasdaq, Standard Investment Chartered v FINRA MAry Schapiro, Suity Puts SEC Chief on the Hot Seat
Posted in Barrons, FINRA, General, Mary Schapiro | 4 Comments »
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