New concerns are cropping up about some banks that may be over-reaching for a larger slice
of the hedge fund market at a time when big funds are losing money.
AIG's more dire fiscal consequences have just begun to emerge publicly. The company said
in a statement on Sunday that it will be correcting its accounting by adjusting its net worth by $2.7 billion. AIG also will
restate its results from 2000 and for the third time will delay its 2004 annual report.
The reality underpinning this epiphany is the fact that oil has "value", or "money's worth" - in
exchange for commodities, goods and services - whereas the financial object we are accustomed to think of as the "dollar"
is merely a "claim over value", or IOU issued by the US Federal Reserve Bank.
Nor is there any explanation for how the entire American economy could owe its Asian suppliers
more and more money and yet still be a model of "good growth." But it was not good growth at all, but bad growth. It is the
kind of growth you achieve just before you go bankrupt...or the fun you have just before you go to Hell. Imagine a church
treasurer who runs off with the choir mistress and the new steeple fund; he sends back a postcard from Las Vegas: "Enjoying
much personal growth. Have taken up smoking...drinking is fun too. Gotta run...gotta hit the slots while I still have some
money left."
The Kondratieff winter bear market is as vicious to share owners as the preceding bull market was generous.
Bull markets begin from a point of extreme investor pessimism. Indeed they begin when most people hate
the very word ‘stocks.' We are nowhere near there. Confidence is far too high.
Huge debt levels in the US means a revaluation (strengthening) of the Yuan is unlikely
to help America says Marc Faber, the famously bearish author of the famous Gloom, Doom and Boom Report. He was speaking on
the last day of the Beijing CLSA China forum.
In the summer of 2000, the Wall Street establishment was fretting about the increase in
the discount rate to 6%. Anyone who had researched previous great financial bubbles would have observed that the senior central
bank is typically 4 or 5 months behind daily market rates of interest. The part worth understanding is that short rates increase
with the speculative party and decline as the party fails.
That dependency makes the renminbi a perfect candidate for a world currency – once its
leaders allow it to be freely convertible and tradable on the world market. The sine qua non of free trade is that people
can come and go with their money. When that will happen in China I do not know for certain. Surely, however, the Chinese have
been feeling the pinch of buying commodities at high prices and selling goods at cheaper ones. One thing's for sure: China's
leaders will not unpeg the renminbi to the dollar just because foreign politicians say they must. Ironically, when the Chinese
pegged their currency to the dollar in 1994 the U.S. applauded it as a smart move.
There are few technical obstacles to getting out of the euro. Yet only an Italian leader of impeccably
pro-European credentials could do that. Funnily enough, the most likely person to become Italy's next prime minister is just
such a man. Romano Prodi, the former president of the European Commission, led Berlusconi in an April poll by SWG Srl, with
61 percent support. Nobody could accuse Prodi of wanting to undermine the European Union.
Whatever its motivation, Japan was well rewarded for creating money
and buying US Treasury bonds with it. Whereas the BOJ had failed to reflate the Japanese economy directly by expanding the
domestic money supply, it appears to have succeeded in reflating it indirectly by expanding the global money supply through
financing the sharp increase in the MOF's holdings of US Dollar foreign exchange reserves. There is no question as to if this
happened. It did. The only question is was it planned (globally coordinated monetary policy) or did it simply occur by coincidence,
driven by other considerations?
Fears of a credit crunch are plaguing financial markets once again. Wider credit spreads and losses in credit derivatives
have triggered concerns that contagion will spread into other rungs of the credit ladder, and thus worries about a credit
crunch that would at least further dislocate markets and at worst derail already-slower economic growth. As evidence
for those fears, representative high-yield spreads over BBB-rated debt have widened by roughly 130 bp in the past month, after
jumping more than 100 bp from their February lows, while AA-BBB spreads have increased by roughly 15 bp.
Pressure from the Bush administration and the US Congress on Beijing to float the exchange rate of
the yuan is increasing. But there is no economic justification for changing China's fixed-exchange rate regime. Rather than
yuan revaluation, US demands for exchange rate adjustment in China should be seen for what they are: Washington's explicit
support for dollar devaluation.
Risk is becoming a nasty four letter word. Stocks are down for the year, junk
bond holders are lightening up as credit spreads widen, and it's likely that GM and Ford won't be the only big issuers to
see credit downgrades now that the credit cycle has turned. Hedge Funds are also struggling to see positive returns, commodities
are well off their highs, and even gold and silver stock investors have recently been taken to the cleaners. Virtually every
investor in almost every asset class, who has placed bets, has suddenly discovered that they are actually a losing speculator.
Wonder why some hedge funds are under pressure? Look no further than the wild moves occurring in
the stock market. You will find spectacular squeezes, epic collapses, even some stocks that are simply immobilized, catching
the most seasoned traders off guard.
Compensating the CIA's dealmakers is a trickier issue. Venture typically capitalists
get a salary and a hefty stake in the returns from companies they fund. To be competitive, In-Q-Tel had to do something similar.
And, Louie says, having some skin in the game keeps staffers motivated to do the best deals. So from 20% to 40% of an employee's
salary goes into a mandatory fund. For every $3 invested in a company, $1 from an employee fund is also invested.
Gold is now at a critical juncture, perched right on its long-term uptrend line, following
a down day on Friday, and although we must assume that the uptrend remains intact until broken, it would nevertheless be wise
for us to attempt to figure out ahead of time what will happen should it go on to break down from the uptrend.
It now costs about $865,000 per year to insure $10 million of GM debt for five years by
using credit derivatives, up from about $213,000 at the start of the year. Insurance on Ford debt costs about $690,000, up
from $173,000. The higher the cost of insurance, the less certain investors are that their debts will get repaid.
GM owes its bondholders about $113 billion, of which almost $15 billion falls due this
year with an additional $27 billion scheduled for repayment next year. Bond investors have lent $97 billion to Ford, with
$12 billion repayable this year and almost $20 billion in 2006.
The first deals with the influence that financial conditions have on aggregate expenditure
and overall economic developments. The second theme reverses the direction and looks at the impact of the macroeconomic environment
on the financial health of different economic sectors. Finally, the third theme deals with the evolving nature of the measurement
of financial risk both at the micro level of individual economic units and at the macro level of whole sectors or the overall
economy.
The issue is far from academic, something that's clear from the intense interest among
policy makers here in Istanbul for the annual Asian Development Bank meeting. Be it discussions about growth outlooks, poverty
or infrastructure, the risk of a dollar crisis is sure to come up.
It troubles many Asians that a man as admired as Berkshire Hathaway Inc.'s Buffett could
so publicly bet on a plunging dollar. It's fine for George Soros to be down on the dollar given his distaste for the Bush
administration; it's another to see the ``Sage of Omaha'' doing the same.
Time was (and not so long ago), that seven figures could buy you something really special.
A penthouse with amazing views. A stunning Hamptons home. A really, really great place in California. On the beach.
If I were in the letter-writer’s shoes, I would
start looking for a new job in a new state. I would put my money to better use. That $600,000 in cash would buy six or seven
houses debt-free in my area. He could be paid at least $7,000 a month in rental income, and probably would double his money
in seven or eight years. Or he could make down payments, buy 20 homes, and get renters to pay off his mortgages in 20 years.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
