Showing posts from August, 2008

McCain's Big Gamble: A Gift To Democrats?

This morning everyone is asking themselves: Who is Sarah Palin? In a bold and risky move, Senator John McCain selected Alaska's governor as his running mate.

Palin, a self-described "hockey mom," is a staunch social conservative with a reputation as a crusading reformer after pushing through higher taxes on oil companies. However, she has been tarnished by revelations that members of her staff tried to have her former brother-in-law fired from his job as an Alaska state trooper:
State lawmakers have launched a $100,000 investigation to determine if Palin dismissed Public Safety Commissioner Walt Monegan last month because Monegan wouldn't fire a state trooper involved in a messy custody battle with her sister.She also is under fire from environmentalists for opposing the Bush administration's decision in May to list the polar bear as a threatened species under the Endangered Species Act because global warming is melting the polar ice cap. Palin said the decision co…

Obama and Gore: Saving the Best for Last!

We are living history. Last night, more than 80,000 Democrats gathered to listen to Senator Barrack Obama accept the nomination for the presidency of the United States of America.

It was a historic moment because Senator Obama becomes the first African American to lead a major political party into presidential elections. Forty-five years ago, Martin Luther King Jr. gave his historic speech, calling on all Americans to unite to overcome hate and bigotry and fight for equal rights among all U.S. citizens.

Last night, Barack Obama delivered a phenomenal speech, invoking the promise of Martin Luther King in a pledge to end "the broken politics in Washington and the failed presidency of George W. Bush."

In doing so, Obama stuck to the facts and hit McCain on all the issues, emphasizing the following:
It’s not because John McCain doesn’t care. It’s because John McCain doesn’t get it.For over two decades, he’s subscribed to that old, discredited Republican philosophy – give more and m…

Will Private Equity Funds Rescue the Markets?

Wall Street was in a giddy mood today. US GDP figures were revised up, right in time for the Republican National Convention next week. This will surely help bolster McCain's assertions that the economy is just fine (sure it is, especially if you lost track of how many houses you own!).

Falling oil prices also helped stocks soar as fears from Tropical Storm Gustav pushed crude oil above $120 a barrel early today, but prices later fell into negative territory as traders bet the government will tap the Strategic Petroleum Reserveif supplies are threatened.

But the GDP revisions were the big headline, sending financials soaring today. According to revised figures, the American economy was more robust in the second quarter than previously reported, as growth of gross domestic product for the period was 3.3 per cent, ahead of previous estimates of 1.9 per cent.

But before you jump to celebrate, analysts caution that much of the GDP growth was driven by the weak dollar, which boosted export…

300 Tough Questions To Ask Your Pension Fund Managers and Trustees

In his 2001 paper, Institutional Investment in the UK: A Review, Paul Myners highlighted the need for trustees to ensure that they are appropriately and professionally advised when making investment decisions that will affect the membership of defined benefit schemes. He wrote that "Decisions should be taken only by persons or organizations with the right skills, information and resources necessary to take them effectively."
Unless you are an investment expert, it is essential that you take professional advice when deciding on scheme investments. And decisions are becoming harder all the time as it becomes more difficult to compare different funds. As Myners said:

So-called ‘peer group’ benchmarks, directly incentivising funds to copy other funds, remain common. And risk controls for active managers are increasingly set in ways which give them little choice but to cling closely to stock market indices, making meaningful active management near impossible.

The main elements i…

Are We Headed Towards a Global Commercial Property Meltdown?

It's time for me to get back to the ugly reality of financial markets. This morning we got more bad news from the U.S. residential real estate market as new home prices dropped by a record amount in Q2:
The Standard & Poor's/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.The monthly indices also clocked in record declines. The 20-city index fell by 15.9 percent in June compared with a year ago, the largest drop since its inception in 2000. The 10-city index plunged 17 percent, its biggest decline in its 21-year history.However, the rate of single-family home price declines slowed from May to June, a possible silver lining, the index creators said."While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level" said David M. Blitze…

Are the Clintons Planning a Coup?

The Democratic National Convention is getting ready to start today in Denver. This is suppose to be Obama's shining moment.

But some think that the Clintons have been working hard to stage a coup. Consider the arguments made in this article published in the Canadian Free Press:

Camp Clinton convinced Camp Obama to help liquidate her campaign debts. Camp Clinton convinced Camp Obama to call for Florida and Michigan voters to be counted. It’s the right thing to do, of course. But had it already been done, Hillary would already be the nominee. Camp Clinton convinces Camp Obama to agree to a floor vote at the convention when all the cameras will be rolling. What if Clinton wins on the floor? Camp Clinton removes Obama supporter John Edwards from the equation, along with his scheduled convention speaking spot, on the basis that he is now a known lying cheater. But Bill Clinton (also a known lying cheater) is the headliner of the convention, and he’s not an Obama supporter at all. Bar…

Obama Picks Joe Biden as a Running Mate

I woke up at 4:00 a.m., couldn't sleep, so I made myself a light sandwich and turned on CNN. It's now official: Barack Obama has picked Joe Biden as his running mate.

I quote the following:
Ending days of speculation, Obama announced the decision on his Web site, featuring a photo of the two. "Barack has chosen Joe Biden to be his running mate," the announcement said. "Joe Biden brings extensive foreign policy experience, an impressive record of collaborating across party lines, and a direct approach to getting the job done." Obama's camp also sent a text message and e-mail to supporters. Biden, a Roman Catholic originally from the battleground state of Pennsylvania, will bring not only foreign policy expertise to the ticket but strong working-class roots. That could help Obama connect with the blue-collar voters he has failed to attract in the run-up to the Nov. 4 election against Republican John McCain. Obama and McCain are neck and neck in opini…

ABCP and Auction-Rate Securities: A Tale of Two Justice and Regulatory Systems

Nothing makes my blood boil more than reading articles like this one from the Boston Globe. Many U.S. retail investors were wiped out and they are understandably angry that they were lied to about the safety of "auction-rate" securities:
"I didn't have a clue what an auction-rate security was,'' said Bert Davidson, a Lexington businessman who has had a large account with Fidelity for several years. But after a Fidelity representative described the securities as safe and cash-like, Davidson said, he decided to invest about $900,000 in them.Now he can't access his money. Auction-rate securities nationwide have been frozen since February, when virtually all trading in the market shut down following a steep drop in investor demand.And like thousands of others who bought auction-rate securities through brokerages across the country, Davidson's frustration level is mounting.Canadian retail investors can empathize as many of them are embroiled in their own a…

Alpha on the Cheap?

In my last post, I looked at how the hedge fund herd is mostly piling into the same trade: short financials, short U.S. dollar and long energy. While it works, it is fine, but when these trades unravel, markets become very volatile and severe market dislocations can easily degenerate into financial chaos.

But why are so many hedge funds piling into the same trade? If these so-called "alpha experts" are supposed to deliver superior risk-adjusted returns, shouldn't they be diversifying their bets and truly limiting their downside exposure? Moreover, there are now close to $2 trillion in hedge fund assets under management out there (with leverage, it's probably closer to $10 trillion or more), which means institutions are paying a 2% management fee and a 20% performance fee for what is essentially beta bets. That's billions in fees for beta bets that can be easily replicated a lot cheaper internally at a fraction of the cost.

In July 2007, the New Yorker published …