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Bloomberg - The steepest plunge in crude prices on record may be setting up oil investors for a rally this year, if history is any guide.
The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 30 percent to $60.29 a barrel by December. The curve looks almost the same as 10 years ago, after Russia’s default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand. Crude prices fell 25 percent in the final quarter of 1998, the steepest drop in seven years.
BusinessWeek - The battering that U.S. stock indexes have taken since the financial crisis escalated in late September has largely been the result of forced selling by mutual and hedge funds in need of cash to meet rising redemptions as fund holders head for the exits.
And as the crisis drags on into late November, investors’ attempts to square their accounts before yearend is exacerbating fund withdrawals.
While most funds typically keep at least 3% to 6% of their portfolio’s holdings in cash, the relentless selling pressure has ignited a vicious cycle that makes fund outflows even larger than normal.
BusinessWeek - For the first time in 76 years, a financial crisis is occurring at the same time as a Presidential election. Based on recent polls, the coincidence seems to have boosted the chances that Illinois Senator Byearack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4.
The financial crisis has affected the Presidential race, but how is the election affecting the financial markets? Pundits offer endless theories on that question, and their answers are often suspiciously similar to their political views.
Thus, right-leaning market experts insist Obama’s tax proposals would be disastrous for investors. More liberal Obama supporters insist the market will celebrate if he is given the job of leading the world out of the financial crisis.
BusinessWeek - Some participants in South Korea’s nascent alternative-investment market have grown pessimistic over the ability of incoming legislation to support the development of an onshore hedge funds industry.
The Capital Markets Consolidation Act will become effective in February. It is a sweeping attempt to give Korea a securities law akin to those in the United Kingdom or Australia, in which financial services are regulated by function rather than by business license, and in which most types of businesses will be thrown open to all kinds of financial institutions. It will allow the development of a universal bank and plenty of cross-selling.
As part of this, the Financial Supervisory Service has been keen to encourage the development of an onshore hedge funds industry. There are a growing number of Korea-focused hedge funds, but nearly all of them operate offshore, in Singapore, Hong Kong or the United States. The government wants to position Seoul as a financial hub for northeast Asia, and has seen how hedge funds have become a vital and welcome part of the milieu in places like Singapore.
BusinessWeek - What did investors do when the Dow Jones industrial average plunged 777.68 points, or 7%, on Sept. 29, to 10,365.45? Head for the nearest bar for a double? Or rush to double up, or down, on their stocks?
Either way, the Dow’s sharp response to the unexpected rejection by the House of Representatives of the Treasury’s buyout plan reminded investors yet again of how unpredictable and volatile the market can be.
"You’ve got to have a steel stomach to confront these types of markets—to survive or win," says William Harnisch, president of hedge fund Peconic Partners, which manages some $1.5 billion in assets. And a winner he’s been at a time when most other hedge funds are struggling to avoid sinking. In 2007, Peconic posted a 64% gain, and this year is up 8% though Sept. 29, vs. a decline of more than 20% for the Standard & Poor’s 500-stock index. So Harnisch wasn’t one of those who scurried to the nearest tavern: He dared to buy stocks as the market plummeted.
BusinessWeek - Not many stocks were left standing when the Dow Jones industrial average crashed by 504 points on Sept. 15—the worst drop since the September 11 terrorist attacks. One stock that did stand firmly was Coca-Cola, the world’s largest soft drink company. When the tsunami-like wave of selling was done on that frenzied day, Coca-Cola’s stock stood at 54.75, up from the previous session’s closing price of 54.50.
True, it was a razor-thin rise, but considering the devastation in the marketplace that day, just staying upright was a mighty accomplishment, as the financial giants lost some 20% to 94% of their value. Nonfinancials also got ravaged, including General Electric, which tumbled 8.04%, ExxonMobil 5.48%, Sprint Nextel 5.70%, Intel 3.97%, and Merck 3.25%.
For a while there, Coke seemed to have lost its fizz. From 2003 through 2006, its shares traversed a narrow range, meandering between 37 to 50. In 2007, the stock came back, trading up to a high of 65 by early January 2008. But then the stock got caught in the market’s subprime-mortgage-driven decline in July, which yanked Coke down to a 52-week low of 49.60. Since then, it’s eased back to the mid-50s.
Buffett’s Beverage
That’s because Wall Street appears to have rediscovered Coca-Cola. Of the 17 analysts who follow Coke, not one recommends selling the stock, and all but two tag the stock a buy. Two analysts rate it a hold. (It’s also reassuring that Coke’s largest stakeholder is Warren Buffett’s Berkshire Hathawa, which owns an 8.6% stake.)
BusinessWeek - Some participants in South Korea’s nascent alternative-investment market have grown pessimistic over the ability of incoming legislation to support the development of an onshore hedge funds industry.
The Capital Markets Consolidation Act will become effective in February. It is a sweeping attempt to give Korea a securities law akin to those in the United Kingdom or Australia, in which financial services are regulated by function rather than by business license, and in which most types of businesses will be thrown open to all kinds of financial institutions. It will allow the development of a universal bank and plenty of cross-selling.
As part of this, the Financial Supervisory Service has been keen to encourage the development of an onshore hedge funds industry. There are a growing number of Korea-focused hedge funds, but nearly all of them operate offshore, in Singapore, Hong Kong or the United States. The government wants to position Seoul as a financial hub for northeast Asia, and has seen how hedge funds have become a vital and welcome part of the milieu in places like Singapore.
The Consolidation Act makes no mention of hedge funds, however, and industry players have lobbied the Ministry of Strategy and Planning (what they call the Ministry of Economy and Finance these days) to address this. The government has responded by floating an amendment to the Consolidation Act that is expected to go before the National Assembly, probably in October. This amendment specifically addresses the ability of onshore fund managers to employ leverage.
BusinessWeek - Platinum and palladium prices rose Thursday alongside gold prices, though the gains were dampened somewhat by falling oil prices and a stronger dollar.
Precious metals are often bought to hedge against a weakening dollar.
Platinum futures for October delivery rose $43.50 to settle at $1,484.20 an ounce on the New York Mercantile Exchange.
Palladium futures for December delivery rose $6.50 to settle at $296.10 an ounce.
A note from a UBS analyst encouraging investors to buy gold boosted precious metals.
BusinessWeek - For managed-care organizations (MCOs), which footed the bill for roughly 34% of U.S. health care spending in 2007, health-care reform presents uncertainty and opportunity. Proposals now being debated in Washington and the different states aren’t affecting near-term business, says Phillip Seligman, a Standard & Poor’s equity analyst who follows MCOs. Nor are MCOs currently incorporating reform proposals into their guidance for 2008 or beyond.
Nevertheless, payers are expecting at least incremental changes to the system, given the level of concerns about spiraling health-care costs and growing lack of access to affordable health insurance. On this, a panel of Wall Street analysts concurred at a recent conference on health-care reform sponsored by the Center for Studying Health System Change (CSHSC).
Because they aren’t sure how reforms will play out, MCOs are hedging their bets by diversifying into new markets and product lines that offer a wide range of coverage and pricing options. Many of these products are designed to appeal to price-sensitive small-group and individual buyers. MCOs traditionally considered these to be modest niche markets at best, but now view them as important for future growth, particularly if reforms initially focus on getting coverage for the uninsured, as is currently expected from the political rhetoric surrounding the issue.
BusinessWeek - In early 2008, Jim Gee hit an impasse. Over the previous five years, Gee had been expanding Trinity Communications, a small cable-TV company in Marion County, Tenn., that he founded in 2003. With startup costs of nearly $3 million, Gee had used personal funds to get the business rolling, laying fiber optic cables across two rural towns and attracting new subscribers. By 2008 he had 600 customers and 6 employees, but Gee couldn’t find additional funds to service new towns and sign new subscribers.
"Local lending was just not available," says Gee. After he exhausted possibilities at traditional lenders, his attorney recommended that he reach out to a hedge fund that had recently started providing asset-based loans to small companies. So Gee met with Genesis Merchant Partners, a fund launched by the $145 million, Connecticut-based hedge fund Sands Brothers Asset Management. Within two weeks of the meeting, Gee had secured a 15-month, $500,000 loan from Genesis, carrying an interest rate of over 14% after fees, with a 10% penalty if he were to pay it off early. Trinity has nearly tripled its subscriber base since it secured the loan, says Gee. His company is now taking out a second loan for a similar amount from Genesis to continue its growth plan. He doesn’t consider the terms particularly onerous: "I was open to go as high as 15%."
BusinessWeek- Citigroup Inc.’s head of hedge fund services is leaving the company, according to an internal company memo.
Steve Bowman has worked at Citi, now the nation’s largest bank by assets, for 24 years in both the New York and London offices.
Friday’s memo from Jamie Forese, co-CEO of markets & banking at Citi, did not say who would replace Bowman. It did say Bowman would help in the coming weeks with the management transition.
BusinessWeek- Assets invested in Asia-focused hedge-fund strategies fell about 10% in the first quarter of 2008, with industry assets under management plummeting from $110 billion to $100 billion, according to Chicago-based Hedge Fund Research.
Net allocations to Asia-only strategies also decreased in the first three months of the year, although net allocations to global emerging-market strategies, which include Asian markets, increased by $1 billion.
On a global basis, the hedge-fund industry attracted a net of $16.5 billion in the first quarter (versus receiving $194 billion throughout 2007), with total capital under management virtually flat over the quarter at $1.9 trillion.