June 27, 2008

More trouble at Investment Banks - Today, revenue per employee is near where it was in 2004. But headcount remains much higher. So how severe would job cuts have to be if staffing was to be in line with recent profit with recent levels of profitability?
Portales Partners, an independent research firm in New York, tried to find out. It examined the growth in revenue and headcount among the major investment banks between 2004 and their most recent quarter.

If revenue reverts back to its 2004 levels, Portales concluded, brokers may need to reduce their staffing levels by 20 percent to maintain recent levels of profitability. But despite the massive losses, Portales estimates that headcount has only fallen in the low single digits from its peak.

Ten years. Two contenders. One winner of a USD1 million prize. On one side, legendary investor Warren Buffett; on the other, fund of hedge funds operator Protege Partners. The battle? Whose net returns will be higher over the next decade: five of the world's most successful hedge funds ... or the passive Vanguard 500 Index Fund? If it's not obvious by now ...

Buffett believes the index fund will win. It might seem shocking that he'd put so little confidence in such bright investors, but a judgment of investing prowess isn't the reason behind Buffett's bearish bet. Instead, as he explained in a recent Fortune article, the hedge fund managers' efforts "are self-neutralizing, and their IQ will not overcome the costs they impose on investors."

June 26, 2008

Is the stock down because they missed earnings or lowered expectations? Big difference.

GM at 53 yr low.

June 24, 2008

Hawkish commentary coming from the Fed. Should strengthen market as dollar rallies.

Most people are selling losers at end of Q. They don’t want their nonsense going out showing signficant holdings in the current losers.

June 23, 2008

So far, banks and brokerages have announced the dismissals of more than 83,000 employees. And more Wall Street layoffs are expected to come in the next few months.

Taking advantage - Fortress Investment Group is considering adding another $1 billion to the war chest it has amassed to take advantage of the pain being felt on Wall Street, The New York Post reported.

Now that LinkedIn has gotten a $1 billion valuation, what of other social-networking sites? DealBook spoke with the chief executive of Doostang, a site aimed at connecting its members with Wall Street jobs, for his take on the social-networking future.Kaltura, a video company that is considered a blend of YouTube and Wikipedia, has closed a second round of funding.

Hedge fund launches slowed to their lowest level in eight years in the first quarter of the year as start-ups were stymied by investors chastened by the credit crunch, and as the shakeout from the worst quarter for hedge funds continues. More single-manager funds liquidated than launched during the first quarter of 2008 and the net total for new hedge funds was 77, according to Hedge Fund Research, a hedge fund industry data provider.

The real issue will become the downgrade of MBIA and AMBAC. Following a series of downgrades from ratings agencies, bond insurers are in talks with banks, looking to wipe away some $125 billion of insurance on debt securities, the Financial Times reported today. Insurers, including New York-based Financial Guaranty Insurance Co., Ambac Assurance Corp. of New York and MBIA Inc. of Armonk, N.Y., gave the banks insurance contracts in the form of credit default swaps. These swaps insured payments on collateralized debt obligations, which were normally backed by subprime mortgages.

Should the banks erase the insurance coverage (also known as “commuting” a contract), they will nix the contract in return for a payment from the insurers.
Those mortgages have plummeted in value in the past couple of years, following numerous defaults and foreclosures.

The value of the contracts is now up in the air but is estimated to be about $125 billion, according to Standard and Poor’s of New York.

Financial services firms, including Citigroup Inc. and Merrill Lynch & Co. Inc., both of New York, have taken write-downs on their quarterly financials due to the deteriorating value of the mortgage-backed securities.

June 20, 2008

China raised its base price for gasoline by 17%, a move that global oil traders concluded would diminish the country's appetite for fuel; benchmark crude fell 3.5%. The decision marks Beijing's largest increase in fuel prices in four years.

June 19, 2008

Banks not closing for securitzation but closing loans for balance sheet.

Return of recourse loans / personal guarantees.

Counterparty Risk Index (CDR). The CDR counterparty risk index, created by research firm Credit Derivatives Research, will track the average of the market spreads of five-year credit default swaps for 15 of the largest banks and brokers that deal in credit derivatives. Credit default swaps are contracts that insure the payment of the bonds that a bank issues. For instance, if a five-year credit default swap that guarantees USD10m (EUR6.45m) of Goldman Sachs debt trades at 105 basis points, this represents a cost of USD105,000 per year. The value of a credit default swap therefore moves inversely to the risk that a bank will default.

Healthcare REITs could be bright spot in lousy RE market.

Some hedge funds have already started to position themselves as a merchant bank with investment banking capabilities to originate structures. This allows the manager to change cash flows as he wants them, and to be a principal investor. Hedge funds have started to build their own channels of origination and enter direct lending. These hedge funds will be able to build a strong financial services company-type balance sheet - a "real" corporate balance sheet to borrow and raise equity against.

June 18, 2008

LinkedIn has made a big connection with investors, who are valuing the professional-networking company at more than $1 billion. LinkedIn said it had received $53 million in venture capital funding from Bain Capital Ventures and three existing investors in exchange for a 5% stake in the Silicon Valley company.

Rights offering is not dilutive. Many banks are doing this currently.

Fifth Third Bancorp said it will sell $1 billion in convertible preferred stock, sell noncore operations and slash its dividend by 66%, becoming the latest regional bank to try to shore up its balance sheet amid heavy credit losses.

We're only about a third of the way through the write-downs. Write-downs could reach $1.3T.

June 16, 2008

Record crude oil, wheat, rice and soybean prices this year have already driven inflation, forcing governments to increase interest rates as the economy slows.

Saudis to increase production has had minimal impact on oil prices. Saudi Arabia’s plan to boost production next month was seen as a sign that the Saudis are nervous about the political and economic effect of high oil prices.

Fed is now totally focused on inflation.

June 12, 2008

Class of 2009 at UNC strong to very strong - Along with forward John Henson and shooting guard Dexter Strickland, McDonald gives North Carolina three players who at least one recruiting analyst ranks in the top 10. Scout.com analyst Dave Telep said North Carolina has the nation's top class.

“It's a pretty impressive haul when you look at it top to bottom,” Telep said. “There's size, talent in the backcourt and a future NBA talent in John Henson.”

Telep said North Carolina's Class of 2006 group was better because it had the top players in the nation at three positions in Lawson, Ellington and Brandan Wright. Highly regarded post players Deon Thompson and Alex Stepheson also were in that class.

Gibbons said the Class of 2009 is better because it's deeper with frontcourt twins David and Travis Wear joining Henson, McDonald and Strickland. There's also a chance the Tar Heels will add rapidly improving power forward Ryan Kelly of Ravenscroft High in Raleigh.

“If they get (Kelly), there's no doubt, this will rank with one of the best all-time recruiting classes in Tar Heel annals,” Gibbons said. “I'm not saying it's the best, but it's one of the best from top to bottom.”

June 11, 2008

Tudor Investment Corp, a hedge fund group led by veteran trader Paul Tudor Jones III, on Tuesday said it hired the former co-heads of Bear Stearns' distressed debt group to build a new credit business. Tudor, which manages over USD18-billion (US), said Gregory Hanley and Alan Mintz, the former senior Bear executives, are joining the firm, along with other members of the Bear credit team including Mitchell Sussman, Eric Friel and Howard Norowitz. The move comes as many large hedge funds have established or expanded distressed debt operations to trade a burgeoning array of corporate debt that is priced well below face value in response to a slowing economy and rising defaults.

Investors pulled a net USD5.9 billion out of US hedge funds in April, marking the industry's biggest outflow in 6-1/2 years as they punished managers for their worst-ever returns at the start of 2008. According to new data released by TrimTabs Investment Research and BarclayHedge late on Monday evening, investors took USD9.4 billion away from individual hedge fund managers and added USD3.5 billion to funds of hedge funds, portfolios that spread select a group of individual hedge funds.

Constellation Brands' Columbia Winery has been sold along with sister winery Covey Run as part of an eight-winery, $209 million deal with Ascentia Wine Estates, a newly formed private company based in California.