Tag Archives: John Paulson

Top 10 Financial Failures of 2011

It’s the financial service web site FierceFinance.com who have put together the list of the biggest blunders in the industry during the past year. Personally, I might have put a few other issues on the list, but when it comes to the final top position I think we have a winner:

“Led by CEO Jon Corzine, formerly of Goldman Sachs, MF Global was a trading powerhouse back in 2010. That all came crashing down in late 2011, as the bank filed for Chapter 11 bankruptcy and lost track of $600 million in capital.”

FierceFinance

Yeah, losing $600 million is probably harder than earning them, and quite an achievement…

FireceFinance writes:

“The MF Global failure was a total unraveling involving poor management and risky investment. For what it’s worth, Corzine said he will not be seeking to collect his $12 million Golden Parachute severance package. But reports surfaced in The Telegraph speculating that MF Global employees in the U.K. may have received Q3 corporate bonuses, even with the firm on the brink of failure.”

Read more: MF Global coverage.

Here’e the rest of the list:

2. Bank of America imposes debit card fee.

“The backlash against the bank was severe. But CEO Brian Moynihan defended the bank’s right to make a profit, saying in a statement that he had “an inherent duty as a CEO of a publicly owned company to get a return for my shareholders.”

3.  Frustration sparks Occupy Wall Street protests.

“What originated as peaceful has become violent, as reports surfaced of police using tear gas on protestors along with attempts to force them out of encampments.”

4. S&P downgrades US credit rating.

“Even though S&P went on to be criticized for its debt rating practices (the issue of credit rating agency credibility looms large), the move was significant at a time when budget showdowns in Washington and a stagnant economy were constantly in the headlines.”

5. Raj Rajaratnam slammed for insider trading.

“The convicted insider trader dominated the news in 2011 and in many ways is seen as the pinnacle of success for federal prosecutors, who have been cracking down on offenders.”

6. Citi stumbles after major data breach.

“Citi was reluctant to publicly announce the breach, finally doing so only after being pressed on the subject by the media. Citi offered a public explanation of the incident and tried reassuring customers that the stolen data was insufficient to commit fraud and that social security numbers, dates of birth and card security codes remained secure.”

7. Bank of America forecloses on couple.

“One of the more bizarre stories of 2011 was when Bank of America accidentally foreclosed on a Florida couple. Although the bank eventually backed down, the couple hired a lawyer to recoup attorney’s fees. Five months passed without payment–this coming after a judge ordered the bank to pay up. So the couple and its attorney showed up to foreclose on a local Bank of America branch, declaring their intent to remove furniture, cash and other property.”

8. RSA suffers cyber attack.

“RSA’s SecureID tokens are used by 30,000 organizations worldwide. RSA remained open about the attack, offering tips and posting details describing the anatomy of the breach. But even transparency didn’t reverse the fact that banks were forced to rethink security and look for new options.”

9. Typo costs Goldman Sachs $45 million.

“A tip for everyone who deals with contracts: Double check all calculations. Goldman Sachs learned that lesson the hard way back in June when it issued four warrants relating to Japan’s Nikkei index. Buried in the depths of financial jargon was a serious formulaic mistake: A multiplication sign was inserted where there should have been a divide by sign.”

10. John Paulson‘s Sino-Forest bust.

“In all likelihood, 2011 will not be a great year for hedge fund manager John Paulson. Among his failures was selling 35 million shares of the Chinese company Sino-Forest at an estimated loss of $500 million.”

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US Hedge Funds Raising Bets On Recovery, Ditching Gold

US hedge fund managers are still keeping the champagne on the cooler as they’re now raising bets on the US economic recovery, the latest flow report by TrimTabs/BarclayHedge show. About 23% aim to increase leverage in the coming weeks, the largest share since May, while only 12% plan to lever down. The survey also reveal that the fund managers see precious metal as the most overbought asset class, and are turning to bonds and US dollar.

“Hedge fund managers are bearish on Treasuries and worried about public deficits, while mom and pop poured a gargantuan $641 billion into bond funds between January 2009 and October 2010.  These are just a few of the reasons why we believe bonds are in the beginning stage of a secular bear market.”

Vincent Deluard


The sophisticated investors are using all kinds of measures to pinpoint the next directions of the markets. Like the statistics for search word on Google.  According to Executive Vice President Vincent Deluard at TrimTabs, has searches for “economic depression” plummeted in the past 18 months, while searches for “double-dip recession” have virtually disappeared since August 2010 and searches for “green shoots’” spiked in January.

Hedge fund managers are upbeat on US equities but less bullish than a month ago, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for January 2011, released yesterday.

About 37% of the 91 hedge fund managers the firms surveyed are bullish on the S&P 500, down from 46% in January, while 26% are bearish, up from 19%.

“Less upbeat forecasts are somewhat surprising in that hedge fund managers performed exceptionally well in the final four months of 2010,” says Sol Waksman, founder and President of BarclayHedge in a statement. “Nevertheless, the January bullish reading is the second-highest since the inception of our survey in May 2010, while the bearish reading is the second-lowest.  Hedge fund managers still have plenty of skin in the game,” he adds.

Hedge fund managers remain downbeat on the 10-year Treasury note, although they are less bearish than a month ago, while they shifted to neutral from bullish on the US dollar index.

A net 8% of managers aim to increase leverage in the coming weeks, down from 11% last month.

Meanwhile, a host of other sentiment gauges reveals that investors of all stripes are especially bullish on domestic stocks.

“Even Google search trends underscore the expectation of higher stock prices and stronger economic growth,” Vincent Deluard, executive vice president at TrimTabs, notes.

“Searches for “economic depression” plummeted in the past 18 months.  Also, searches for “double-dip recession” have virtually disappeared since August 2010, when the FED announced QE2, while searches for “green shoots” have spiked in January.”

The share of managers that cites large public deficits in the US as the biggest risk to global economic growth  – 33% – is identical to the share that cites sovereign debt problems in Europe.

Also, 41% of managers do not know what to expect from the Fed in the wake of QE2, but 67% expect bond prices to fall after it ends in June.

“Policymakers have proven wildly successful at keeping market participants guessing about what they will do after QE2 ends,” Deluard says.  “But we feel another round of QE is unlikely to alter the bond landscape.  Yields across the curve stand between 30 and 100 basis points north of the 2010 lows despite heavy Fed Treasury purchases.  Hedge fund managers are bearish on Treasuries and worried about public deficits, while mom and pop poured a gargantuan $641 billion into bond funds between January 2009 and October 2010.  These are just a few of the reasons why we believe bonds are in the beginning stage of a secular bear market.”

This is the main findings in the first hedge fund survey of the year:

1. Hedge fund managers have turned very upbeat on U.S. equities. About 46% of the 92 managers we • surveyed in December are bullish on the S&P 500, while only 19% are bearish. These readings are the highest and lowest (respectively) since the inception of our survey in May.

2. A host of other sentiment gauges – the Merrill Lynch Bank of America survey of institutional investors, • the AAII survey of retail investors, the Investors Intelligence survey of investment advisors, and the VIX – show that investors of all stripes have turned extremely optimistic on domestic stocks.

3. Forecasts for the 10-year Treasury yield and the U.S. dollar index reflect the expectation of a strong • economic recovery. About 54% of hedge fund managers are bearish on the 10-year note, while only 14% are bullish. These readings are the highest and lowest (respectively) since May. Meanwhile, about 39% of managers are bullish on the greenback, while only 13% are bearish. These readings are also the highest and lowest since May.

4. Hedge fund managers reveal that they plan to bet aggressively on the economic recovery. About 23% • aim to increase leverage in the coming weeks, the largest share since May, while only 12% plan to lever down.

5. Managers expect Treasury yields to keep increasing. Only 11% think yields will not continue to rise, • and 42% expect them to increase the most at the long end of the curve. About half (46%) of managers attribute higher yields to expectations of higher inflation and stronger economic growth. Only 4% cite the debt implications of the Bush tax cuts.

6. Hedge fund managers cite precious metals (32%) as the most overbought asset. Emerging markets • equities and Treasuries (23% for each) are tied for second. We are a little surprised to see precious metals top the list because inflation expectations are still high and mutual fund flows suggest bonds and REITs are much more overbought than metals.

Signs of Complacency?

Multiple sentiment gauges show that investors of all stripes have turned extremely optimistic, the report says.

A net 16% of the 302 institutional investors surveyed by Bank of America Merrill Lynch in December are overweight U.S. equities.

In addition, 44% believe global growth will prove stronger in 2011, up from 35% in November and 15% in October. Investors Intelligence reports that 56.8% of advisors are bullish, the highest level since the market top in October 2007 and nearly triple the 20.5% who are bearish.

The American Association of Individual Investors reports that “mom and pop” are bullish to the tune of 50.2%, nearly double the bearish figure of 27.1%. Meanwhile, the VIX tumbled to 16.11 on December 17, the lowest level since April.

Let me just remind you of Bob Farrell’s famous 10 rules of investing, rule number nine; “when all analysts agree, the opposite is going to happen.”

 

Anyway – the hedge fund Managers reveal they plan to bet aggressively on the economic recovery.

About 23% aim to increase leverage in the coming weeks, the largest share since the inception of our survey in May, while only 12% plan to lever down.

However, the most interesting finding in the January hedge fund survey is perhaps the fact  that most managers see precious metals, like gold, as the most overbought asset class at the moment.

(And here’s a copy of the report.)

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Gold – The Utimate Bubble?

Jonathan Burton has an interesting piece at MarketWatch Saturday morning. San Fransisco based Burton, the website’s money and investment editor, argue that investors are being lured into a speculative gold bubble comparable with the oil spike of 2008. Mr. Burton points out that gold in reality is an insurance against a total market collapse and other catastrophes, and that an even higher gold prize means that the value of most other assets will crash.

“Gold buyers beware — the karat can be a sharp stick. As with any speculation, gold can lose luster as fast as hedge funds and other traders can unload it.”

Jonathan Burton


Rate hikes are kryptonite for gold; accordingly, concerns that China will move aggressively on rates, and that the US and developed Europe will ultimately follow, have dulled gold’s glimmer over the past week, Jonathan Burton at MarketWatch writes.

Gold has become highly prized bling-bling, with the prize per ounce reaching another all-time-high this week at 1.395 dollar per ounce.

Anxious and astute buyers, from hedge-fund players to central bankers, flock around the “currency of fear.”

Gold at around $1,400 an ounce is almost double what it commanded two years ago, and gold’s price is up almost 25% so far this year alone.

“It’s been a great ride. Except gold is a bad investment,” Mr. Burton states.

Adding: “Gold’s feverish run has made a lot of people a lot of money, and though the rally has taken a breather in the last few days, there’s no shortage of flag-waving supporters who claim gold is on a march to $1,600, $1,800, $2,000 and beyond. After all, gold is still well below its 1980 peak, when it was worth around $2,300 an ounce in today’s dollars.”

Pure Speculation

The MarketWatch editor also emphasise that the recent raise in gold prizes is caused by nothing else than pure speculations.

“Certainly there are reasons to own gold in a diversified portfolio. Yet gold isn’t like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that’s safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing,” Jonathan Burton writes, backed up by the following quotes:

“Gold is going up because people are buying it, and people are buying it because it’s going up.” (Leonard Kaplan, president of Prospector Asset Management).

Gold is always a speculation. (James Grant, editor of Grant’s Interest Rate Observer).

“Gold may be a good speculation; even cautionary voices concede that gold is not yet displaying the parabolic hockey-stick pattern that frequently forms an ugly bubble. Low yields on safer assets such as bonds and cash encourage risk-taking and speculation, which favors gold, silver, metals, commodities and many stocks. If the U.S. dollar continues to decline, gold will be a main beneficiary,” Burton continues.

According to the last disclosure in June, the three giant hedge fund managers, George Soros, John Paulson and Eric Mindich, controls 10% of the worlds leading gold ETF, SPDR Gold Trust.

Of course, they staked their claim early, and their view on gold and the dollar may now have changed, as investors will soon discover when these influential funds release Sept. 30 portfolio holdings.

“But gold buyers beware — the karat can be a sharp stick. As with any speculation, gold can lose luster as fast as hedge funds and other traders can unload it,” Burton warns.

The Greater Fool Theory

To Jon Nadler, senior analyst at Kitco Metals Inc. and a veteran gold-market watcher, Wall Street’s buy recommendations remind him of speculation in 2008 that propelled another must-have commodity — oil, the “black gold” — to stratospheric heights.

“I don’t think gold is an opportunity at $1,400 an ounce,” Nadler says. “Just because gold has been above $1,000 for 14 months, everybody thinks it’s a new paradigm. This is very much what we heard about oil a couple of years ago.”

“An investment is something you buy near its value. If gold costs $450 or $500 to produce, at $1,400 you don’t have value, you have momentum.” (Lenord Kaplan at Prospector Asset Management).

Perhaps Leonard Kaplan at Prosoector Asset Management clarifies the issue best: “Gold at $1,400 is not what I would call an investment. An investment is something you buy near its value. If gold costs $450 or $500 to produce, at $1,400 you don’t have value, you have momentum.”

And as any experienced trader should know by now – momentum is just another word for the greater fool theory. (The strategy of buying with no other intent than selling at a higher price – until the rally stops and the greatest fool is not able to find any new buyers).

It is similar in concept to the Keynesian beauty contest principle of stock investing.

An Insurance You Don’t Want To Use

“I called gold the ultimate bubble, which means it may go higher,” Soros told an investor conference in New York in mid-September, repeating a warning he’d made earlier this year. “But it’s certainly not safe and it’s not going to last forever.”

The recommended strategy at the moment is to hold between 5 and 10 percent of a clients’ portfolio in gold.

But this is not a new strategy. In fact, it’s an essential part of the old school investment lesson on long-term planning,  designed to expect the unexpected.

“If it works really well, chances are the other things in the portfolio aren’t going to be looking so good.”  (Karl Mills, president of investment advisory firm Jurika, Mills & Keifer.)

“We actually hope it doesn’t work too well,” Karl Mills, president of investment advisory firm Jurika, Mills & Keifer. says. “If it works really well, chances are the other things in the portfolio aren’t going to be looking so good.”

Jonathan Burton

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“Indeed, that’s how most individual investors should look on gold, as a way to mitigate investment risk — and an insurance policy you hope never to use,” Jonathan Burton at MarketWatch concludes.

Well, that’s actually how it’s always have been, and always will be.

PLease, don’t forget that.

Now, read the full story at www.marketwatch.com.

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