RCM Comment: Good news/bad news on the investment management front as it relates to the redemption/repatriation trade. Citadel’s decision to suspend redemptions until March will no doubt lead the way for others to do the same which should relieve some of the pressure on the markets. Of course, adhering to the cockroach theory (which states there is never only one) we now need to monitor the Madoff (pronounced Made Off, as in “he made off with the money”) story. What will be the ripple effect?
Citadel suspends redemptions from two hedge funds – Reuters.com
Reuters.com reports Citadel Investment Group said it has halted redemptions from its two largest funds until at least March. The suspension affects the Kensington and Wellington funds. The decision was “driven by continued volatility in the market,” Citadel spokeswoman Katie Spring told Reuters in an e-mail. The move was announced in a letter sent to investors on Friday by Citadel’s founder and president, Ken Griffin, and reported by Crain’s Chicago Business. “We recognize how a suspension impacts our investors, especially those with current financial obligations of their own to meet,” Griffin wrote.
Losses in Madoff case spread – WSJ
WSJ reports investigators dug through financial records at Bernard Madoff’s investment co as the list of victims of his alleged Ponzi scheme widened to include real-estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, Sen. Frank Lautenberg and a charity of movie director Steven Spielberg. The scandal reverberated around the world, with banks including Spain’s Grupo Santander (STD) and France’s BNP Paribas saying that their clients and shareholders together face billions of euros of losses. Monday morning in Tokyo, Nomura Holdings (NMR) said its exposure to investments with Mr. Madoff totaled 27.5 billion yen ($302 million). A spokesman described the co’s potential losses as “limited.” At Mr. Madoff’s office in midtown Manhattan, guards have been positioned 24 hours a day. Investigators from the Federal Bureau of Investigation, Securities and Exchange Commission and the Financial Industry Regulatory Authority are trying to identify if any assets remain, a person familiar with the matter said. (According to a DJ story, other companies that have disclosed exposure to Madoff’s investment co include: RBS, AXA, BCS, UBS) RCM Comment: Is this a black eye for the hedge fund industry, or simply an example of investors not doing their due diligence? As the details are revealed we discover the following: 1) The Madoff fund was not registered with the SEC and there was a shocking dearth of information regarding the fund, 2) All the assets were held by Madoff, there was no custodian. This is a major red flag and one easy to identify, 3) The fund had no auditor!?!, 4)The investment strategy was shrouded in secrecy and investors were not allowed to know what the holdings were. Secrecy is a classic component of a Ponzi scheme.
So, I ask the investing public to cut the hedge fund industry some slack on this one and instead do a little introspection. Perhaps, the time has come for the investors in the Madoff fund to do the difficult and honorable thing and take responsibility for their own actions. For more on my thoughts of this novel idea, please see this Rosenthal Rant.
RCM Comment: Only a week ago we observed that politicians never overestimate the size of a spending package. Well, that observation is proved out by the following story. If the Obama administration continues to spend at this licentious rate I will be forced, as a precious metals advocate, to bumper sticker my car proclaiming Obama support.
Meatier stimulus plan in works – WSJ
The Wall Street Journal reports Obama’s economic team is considering an economic-stimulus program that will be far larger than the two-year, half-trln-dollar plan under consideration two weeks ago, according to people familiar with the team’s thinking. The president-elect is expected to be briefed on the broad parameters of the plan next week, with aides still hoping for Congress to pass a bill by the time Mr. Obama takes office Jan. 20. With the unemployment rate now expected to hit 9% without aggressive intervention, Obama aides and advisers have set $600 bln over two years as “a very low-end estimate,” one person familiar with the matter said. The final number is expected to be significantly higher, possibly between $700 bln and $1 trln over two years. Transition spokeswoman Stephanie Cutter denied any decisions have been made on the scope of the plan. “Any speculation on size or scope is premature at this time,” she said.
Bush administration is weighing a much larger rescue effort for U.S. automakers than originally envisioned – WSJ
WSJ reports in weighing a much larger rescue effort for U.S. automakers than originally envisioned, the Bush administration faces a complex set of decisions over what terms to seek ” including whether to push the companies to file for bankruptcy ” and how to raise necessary funds. The administration is trying to determine how much money it will take to help the car companies, and is discussing a rescue totaling $10 billion to $40 billion or more. One possible source of funding is the Treasury Department’s $700 billion fund set up to rescue the financial industry. Only about $15 billion remains uncommitted from the first tranche of $350 billion, so the Bush administration could be forced to request the second half to cover the car companies’ needs, people familiar with the situation said. That likely would compel the administration to outline its plans for a range of other needs, including mortgage-foreclosure prevention for struggling homeowners and possibly aid for state and local governments. That could spark another confrontation with lawmakers, who are increasingly divided over industry bailouts” On Sunday, a person familiar with the situation said the companies’ collective needs could range from $10 billion to more than $30 billion. The administration spent the weekend poring over the automakers’ books to assess their financial needs. This person said the decision-making could stretch out for several more days.
RCM Comment: The last two weeks have been marked by the dexterous ability of the market to overcome bad news. We know the earnings of the big investment banks will be poor; the question will be how the markets react.
MS Morgan Stanley expected to ring up loss of about $1 bln – NY Post (13.85 )
NY Post reports Morgan Stanley (MS) is expected to ring up losses of about $1 bln when it reports its fiscal fourth-quarter earnings Wednesday. Continued fretfulness in the stock market magnified by the latest $50 bln scandal with New York money manager Bernard Madoff, and a seizing up in credit markets, has found Morgan CEO John Mack slammed. Morgan is said to have been particularly hard hit this quarter in areas including emerging markets and interest rates as the mortgage-inspired flu that infected the US spread to other countries. Goldman Sachs (GS) Chief Executive Lloyd Blankfein this week also is expected to see his marquee franchise whacked by a roughly $2-3 bln loss.
RCM Comment: Now here is news that actually moves markets. You won’t hear about this on CNBC, they would rather debate the auto bailout ad nauseam, which will not help you the investor make money. The prevailing wisdom of the financial news media tells us that deflation is upon us and commodity prices will head lower. However, read the following story carefully and you will see the nascent commodity rally may have legs.
Shipping charter rates soar – Financial Times
Financial Times reports one of the world’s key shipping markets has begun to recover from a slump, with a revival in Chinese demand for iron ore and coal pushing some average charter prices up almost threefold in the past week. The revival in prices, after a disastrous six months for the industry in which charter rates fell nearly 99% for the largest vessels, could encourage shipowners to bring mothballed vessels back into service. One participant said 12/13 that some owners were able to charge enough to cover the costs of operating Capesize ships, the largest dry bulk carriers. Average rates for these ships, which move coal and iron ore, have nearly tripled over the past week. However, smaller ships have yet to show the same recovery as Capesize vessels. Average spot rates, or the cost of carrying a single cargo immediately, finished the week at $8,261 a day for Capesizes, according to figures from Pareto Dry Cargo, an Oslo shipbroker. The previous week’s average was $2,763, one of the lowest yet seen. Pareto reported a long-term charter of a Capesize ship at $17,500 a day for a year, more than the daily basic operating costs of such a ship. Long-term charter rates are, unusually, higher than those in the spot market because of expectations that the spot market will recover.