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Friday, February 29, 2008

Ambac Bailout: The Wheels Come Off

This morning Gasparino tried to convince the markets that the Ambac bailout ‘might still get gone’. The markets didn’t believe a word and the futures stayed down. So as fast as prices went up on the great bailout circle jerk, they have gone down. The S&P is now at 1350 and 1340 is next.

Financial Firms Face $600 Billion of Losses, UBS Says (Update1): “Financial firms are likely to face at least $600 billion of losses as the crisis triggered by the collapse of subprime mortgages batters banks, brokers and insurers, UBS AG analysts said in a report today.

Financial institutions have disclosed more than $160 billion of writedowns and credit losses. Banks and brokers stand to lose $350 billion, according to estimates from UBS's global banking team.

“We have to recognize the risk that the economy will suffer more damage than what consensus suggests,” wrote Geraud Charpin, head of European credit strategy at UBS in London. “All the investment schemes that have been built on the basis of a strong and resilient economic backdrop have to be unwound/ scaled down.”

American International Group Inc., the world's largest insurer, reported the biggest quarterly loss in its 89-year history yesterday after an $11.1 billion writedown on derivatives linked in part to subprime mortgages. London-based Peloton Partners LLP said yesterday it is being forced to liquidate a $1.8 billion hedge fund managing asset-backed debt because of tighter lending restrictions on Wall Street.

“The collapse of Peloton's flagship fund yesterday is a reminder to all investors that yesterday's rising star can be tomorrow's fallen angel,” Charpin wrote. “Leveraged risk positions are a cancer in this market and the sooner it is treated the better.””

Just a friendly reminder that the worst is not yet over… that in fact the worst is still ahead.

Peloton Blames Wall Street Lending Crackdown for Fund Collapse: “Peloton Partners LLP, the London- based hedge fund manager being forced to liquidate a $1.8 billion asset-backed fund, said it's a victim of Wall Street's reduced lending.

“Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls,” Peloton co-founders Ron Beller and Geoff Grant said in a letter yesterday to clients.”

Quit your whining Mr. Hedgie. IT’S A CREDIT CRUNCH. WHAT DID YOU THINK WOULD HAPPEN? Why didn’t you employ a decent level of gearing instead of a ridiculous level? Oh right, because you wanted to make a ridiculous amount of money instead of just a decent amount of money. Or, why didn’t you start to peel back some of that gearing as things deteriorated and volatility increased? Could it be that you were blinded by greed again?

“Peloton joins Thornburg Mortgage Inc. and Sailfish Capital Partners LLC on the growing list of funds and companies that have had to sell securities or shut down after banks restricted how much they could borrow, or demanded more collateral as values of securities backed by mortgages slumped. The world's biggest financial institutions are cutting off lines of credit to hedge funds after at least $163 billion of asset writedowns and market losses.”

As all kinds of credit is reigned in or eliminated entirely, risky assets can do nothing but go down… and I’m talking DOWN HARD. Years of ‘liquidity’ which in reality was nothing but easy credit are now being undone. QUICKLY. Nuff said. Trade accordingly.

AIG Drops on Biggest Loss in Firm's 89-Year History (Update1): “American International Group Inc., the world's largest insurer, fell in German trading after the company reported the biggest quarterly loss in its 89-year history.

AIG said in yesterday's statement it expects more writedowns this year amid the worst U.S. housing slump in a quarter century. Chief Executive Officer Martin Sullivan said “continuing market deterioration would cause AIG to report additional unrealized market valuation losses and impairment charges.”

The pretax writedown of $11.1 billion wiped out operating profit, which would have been $1.58 a share without the charge, Morgan Stanley analyst Nigel Dally said. AIG also had another $3.27 billion of losses before taxes on impaired holdings in its investment portfolio.”

You don’t want to see the world’s largest insurer reporting its largest loss ever for that is a very reliable signal that all is not well in the global economy. Emphasis on GLOBAL.

Watch the Yen. Risk is being aggressively and probably forcibly unwound.

Related Posts:
Monoline Bailouts: The Great Circle Jerk
Dennis Gartman And The Yen
The Yen As A Leading Indicator
Watch The Yen, Carry Trade Unwind


Anonymous said...

Of course a simple mistake but maybe an omen. CNN showed S&P dropped -1,232.50 (-90.12%) to 135 at about 0945. I don't have all the good software or knowledge of 99.9% on this site (I'm at the very bottom), but really enjoy all these interesting blogs. My only thing to watch is the CNN website and saw and printed out that little quirk and graphic. I guess at the time it was probably down -12.32 and the decimal got misplaced.

Brant, Atlanta, GA

Anonymous said...

that is one weird candle on the spx....tos charts show the same blip down. also showing up on the tnx 10 year? weird...........

Anonymous said...

Keep up the good work.

4 point drop in the yen to the usd last three days. Me thinks the carnage has only begun in the markets this time around, at least until the powers that be can muster another "surprise" rate cut. But wait, hasn't the market already priced that in? hilarious!

festerpig said...

I think you have are doing great stuff on this blog. Thanks for that.

If one looked at the yen, we have gone from 114 at the start of year (if memory does not fail me) to 103.70. That is a hell of a move - no doubt de-leveraging is happening on the yen. My question is that at this rate the yen is appreciating, much much to the detrimant of the Japanese exporters I am inclined to think the possiblity of a BOJ intervention is not far away. Any thoughts?


Yes and Not Yes said...

Ninja, I also read that Bloomberg article on Peloton and I had the same thoughts exactly! Quit complaining already and own up to the fact that you chose not to run your fund in such a way that it wouldn't get in trouble during a credit crunch!

eda said...


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