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Reuters - Officials from the Federal Reserve and the European Central Bank on Sunday vowed to fight the damaging effects of deflation as the global economy suffers a deep and lengthy recession.
In just a few months, central bankers’ concerns have flipped from fighting inflation to staving off possible deflation — a condition in which falling prices cause consumers and businesses to delay purchases, resulting in an even steeper economic downturn.
Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association.
Seeking Alpha - In 1997, some observers feared an impending global recession as a result of the headwinds stemming from the Asian financial crisis. However, within two years, those fears had dissipated and were replaced with new concerns of irrational exuberance.
In contrast, the U.S. economic downturn beginning in 2008 initially appeared to be relatively benign. Most observers believed that a moderation in U.S. economic growth was essential to prevent an over-heating of the global economy. It was further believed that the problems confronting the U.S. economy were of its own making and would have little effect on global economic growth.
To be sure, some economists did forecast a U.S. recession in 2008 as a result of mounting home foreclosures. Such forecasts were however widely dismissed as being unduly alarmist during the first quarter of 2008.
West Palm Beach (HedgeCo.net) - In an interview with Geneva based Forex trader and currency specialist Robert Paulson, he said; "Trading the Forex market is for serious investors seeking alternative investment opportunities."
Clients pulling out of hedge funds due to the current state of affairs has raised questions about short term options and the possibility that investors may find a managed account more suitable.
"Understanding the dynamics of diversification and proper asset allocation is an easy formula to understand. To some investors currency trading is considered a “must” and a “cannot do with out” investment class. In Forex there are no “bull markets” or “bear markets”, having the mobility to trade virtually anywhere in the world is essential when it comes to proper investing.”
Currently operating a managed account program in Geneva, Paulson said he is looking to Dubai and the UAE for the next wave of investors, "The dynamics of the current investment environment offers opportunity for those with a realistic appetite for risk. The Foreign Exchange (Forex) markets have been an asset class most enjoyed by the informed. With over a trillion dollars being traded each day opportunity is mentioned often. In the current financial environment we hear about stock markets falling, commodities selling off and real estate prices dropping. What we don’t hear much about is where serious money is being made."
Making money has never been easy and respectable returns are often taken for granted. To achieve consistency one must thoroughly analyze, track, and monitor economic conditions around the globe.
Paulson also warned, "There is an enormous amount of time needed to ensure intelligent representation in a fast moving environment. One should understand that where there is a loss there is also a profit, zero-sum is not a game but a way of life. It is also a breeding ground for those who understand."
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Using commodities to hedge potential losses in stock markets has not worked lately, and the tighter link among assets these days means diversification benefits may not be as great as before.
Hedge funds, pension funds, mutual funds and wealthy individuals who invested in commodities on the theory that they move independently of other asset classes watched helplessly as the global economic nosedive turned commodities, once the top asset class, into the year’s worst performer after equities.
Those who have studied commodities and longtime investors in energy, metals and grains say that in ordinary times, these markets make good alternatives to stocks.
Free Internet Press - George Soros, 78, has made billions as a hedge-fund manager and investor. Germany’s Spiegel magazine spoke with him about the current financial crisis, how he expect President-elect Barack Obama to respond to the economic disaster and the responsibilities borne by speculators.
SPIEGEL: Mr. Soros, in spite of massive interventions by governments and federal banks the financial crisis is getting worse. The stock markets are in free fall, millions of people could lose their jobs. More and more companies are in trouble, from General Motors in Detroit to BASF in Ludwigshafen. Have you ever seen anything like it?
Soros: Never. I find the present situation dramatic and overwhelming. In my latest book, “The New Paradigm for Financial Markets: The Credit Crisis of 2008”, I predicted the worst financial crisis since the 1930s. But to tell you the truth: I did not actually anticipate that it would get as bad as it did. It has gone beyond my wildest imagination.
Globe and Mail - This is how bad things are for hedge funds right now. On the CanadianHedgeWatch.com website, a hub for the hedge business, the lead article one recent day was headlined "The hedge fund collapse."
The article, which originally appeared on the Portfolio.com website, tells us that as many as half the 10,000 hedge funds that existed earlier this year could fail or be wound up in the next 12 months. Outsmarted by the financial crisis of 2008, some prominent hedge fund managers lost 20 to 65 per cent of their assets even before October came. "The hedge fund mystique died with the crash of 2008," the article says.
The mystique is dead for sure, but hedge funds are not. The Horizons Global Contrarian Fund proves it.
What we have in Horizons Global Contrarian is a hedge fund of the old school. Rather than acting as a supercharged equity fund willing to push all risk boundaries, it tries in a measured and conservative way to make money no matter what the stock markets are doing.
The article, which originally appeared on the Portfolio.com website, tells us that as many as half the 10,000 hedge funds that existed earlier this year could fail or be wound up in the next 12 months. Outsmarted by the financial crisis of 2008, some prominent hedge fund managers lost 20 to 65 per cent of their assets even before October came. "The hedge fund mystique died with the crash of 2008," the article says.
The mystique is dead for sure, but hedge funds are not. The Horizons Global Contrarian Fund proves it.
What we have in Horizons Global Contrarian is a hedge fund of the old school. Rather than acting as a supercharged equity fund willing to push all risk boundaries, it tries in a measured and conservative way to make money no matter what the stock markets are doing.
Dallas Morning News - Hedge fund operator and oil prognosticator T. Boone Pickens liquidated one of his hedge funds last month as the stock markets plunged.
The Dallas billionaire converted his energy equity fund to cash and offered investors the opportunity to withdraw their money early.
The fund started with $2 billion and could be down to around $400 million to $500 million after withdrawals, according to someone familiar with the fund.
The fund was down 60 percent this year after heady gains in previous years.
Globe and Mail - Hedge fund manager Ravi Sood is having a rough time navigating through the tsunami that has hit stock markets around the world.
The stellar record of his Lawrence Partners Fund suffered a 48-per-cent hair cut in September, sending its year-to-date loss to 53 per cent for the first nine months of 2008.
Mr. Sood would not comment about his fund, but told investors in a letter that he was forced to "reduce the size of core positions at inopportune levels in midmonth. …
"We cannot restore all of this year’s loss to date in the next few months or quarters, but we are confident we will get there," said the president of Toronto’s Lawrence Asset Management Inc.
Mr. Sood would not comment about his fund, but told investors in a letter that he was forced to "reduce the size of core positions at inopportune levels in midmonth. …
"We cannot restore all of this year’s loss to date in the next few months or quarters, but we are confident we will get there," said the president of Toronto’s Lawrence Asset Management Inc.
West Palm Beach (HedgeCo.net) - Fitch Ratings has taken a positive view of the recent moves by the United Arab Emirates (UAE) government to boost liquidity in the banking system but notes that the operating environment has become more challenging.
"The risks of a UAE bank suffering a capital markets-driven liquidity crisis are limited as none of the banks are reliant on these markets. Their funding bases are predominantly based on retail and corporate deposits, with the balance as inter-bank borrowings and some limited debt capital market issuance," says Robert Thursfield, Director in Fitch’s Banks team.
"However, UAE banks face mounting challenges in the form of slower economic activity, a property market correction and negative valuation adjustments from continuing volatility in regional stock markets."
It is unlikely, Fitch says, to change the banks’ Long-term Issuer Default Ratings as these are driven by expected support from the UAE authorities, although Individual ratings could come under pressure if the banks’ ability to fund themselves deteriorates, leading to declining growth, profitability and the erosion of capital.
Fitch says the series of measures taken by the Central Bank of the UAE (CBUAE) and UAE Ministry of Finance (MOF) are likely to strengthen confidence in the bank sector.
The longer-term challenge faced by the banks is to develop other funding/capital sources so they can continue financing a significant pipeline of infrastructure projects.
A more immediate challenge for the banking sector is the likelihood of a negative impact from major corrections and continuing volatility in regional stock markets. The Dubai Financial Market was down about 44% YTD and the Abu Dhabi Securities Exchange down about 23% YTD as of 21 October 2008.
The Dubai property market has seen spectacular growth in recent years but there is increasing concern that a correction will occur in the short- to medium-term. Stress in the local interbank market is likely to have a negative impact on the availability of residential mortgages and funding for property developers, which would dampen demand as supply is forecast to increase.
The declining oil price will negatively impact business sentiment and domestic economic activity (Brent was priced around $67 a barrel on 21 October 2008). This could result in the postponement or cancellation of some major projects. However, Fitch estimates that Abu Dhabi would continue to run a budget surplus at a price as low as $31/bl.
Bank results for the year to end-September 2008 will be published soon and Fitch expects to see slower growth in loans and deposits, higher funding costs and negative investment portfolio mark to market valuations. Fitch will review the results and may comment further on the sector’s performance.
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Reuters Tokyo - The yen dipped against higher-yielding currencies on Monday while the Australian dollar surged as leaders from Europe to the United States rushed out plans to shore up banks and stem the panic gripping investors.
After many stock markets suffered their worst weekly losses ever last week, leaders from Group of Seven industrialised nations set out a plan of action.
European officials offered to guarantee some bank debt and inject public funds into individual banks if necessary.
The United States said it would take stakes in banks in a first such move since the Great Depression, Australia guaranteed bank deposits and Britain was set to pump more than 40 billion pounds into its four biggest banks.
The flurry of initiatives to contain the worst financial crisis since the 1930s increased investor appetite for risk, though analysts were uncertain whether the improving mood would last very long.
Guardian.co.uk - The Tories were accused last night of being bankrolled by a City ‘wolf pack’ after it emerged that the party was receiving hundreds of thousands of pounds from hedge fund managers who have been making vast sums of money from plunging bank shares.
After the Financial Services Authority had, in effect, barred the controversial practice of short-selling bank stocks and the Treasury was forced to draw up a rescue package for Bradford and Bingley, it emerged that a small group of City financiers who have made fortunes from falling stock markets are paying at least £50,000 a year to the party.
Their donations entitle them to membership of an elite supporters club called the Leaders Group, which bestows invitations to functions attended by David Cameron, something that has prompted allegations that the Tory leader is supporting ‘cash for access’. Last night, in an attempt to quell a mounting row over the party’s finances ahead of this week’s conference, the party put details of the Leaders Group on its website.
It has also emerged the Conservatives have continued to receive money from Lord Laidlaw, a Monaco-based tax exile who has given the party more than £3m. One donation came after the fact that he had taken part in orgies with prostitutes was exposed in the tabloids.
Bloomberg - The U.S. Securities and Exchange Commission may require hedge funds to disclose their short-sale positions and plans to subpoena the funds’ communication records in an effort to stem turmoil in stock markets.
Hedge funds and investors managing more than $100 million in securities would be “required to promptly begin public reporting of their daily short positions,” Chairman Christopher Cox said in a statement yesterday. The proposed disclosure is in addition to three SEC rules that took effect today aimed at reducing manipulative trades betting on a drop in share prices.
Lawmakers including U.S. Senate Banking Committee Chairman Christopher Dodd and executives such as Morgan Stanley Chief Executive Officer John Mack say short sellers may be spreading false information and using abusive tactics to attack companies. Hedge funds say poor business strategies are to blame and an industry spokesman said the SEC announcement was “abrupt.”
“The consequences of a hasty or ill-considered rule in this environment could be extremely harmful to the capital markets,” said Jim Chanos, chairman of the Coalition of Private Investment Companies, which represents 20 funds with assets in excess of $120 billion. “Such a requirement is akin to the government suddenly requiring Coca-Cola to disclose their secret formula for free to all their competitors.”