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Showing posts from October, 2008

Pension Funds Go Trick-or-Treating

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How fitting, this Halloween, to see pension funds go on a buying spree:
World markets rose Friday amid stock buying from pension funds balancing their portfolios at the month's end and a general sense that share prices may have hit a bottom. Asian shares had earlier closed mostly lower.

The Dow Jones index of leading U.S. shares was up 88.72 points, or 1.0 percent, at 9,269.41 despite further dreadful U.S. economic data.Britain's FTSE 100 index was 85.69 points, or 2.0 percent, higher at 4,377.34 despite a 19 percent plunge in the share price of telecommunications company BT PLC after it issued a profits warning.Meanwhile, the CAC-40 in France was 79.25 points, or 2.3 percent, higher at 3,487.07. Germany's DAX saw the biggest gains, having underperformed the other indexes all week. It was 118.67 points, or 2.4 percent, higher at 4,987.97.Concerns about the global economy were stoked further Friday after the Commerce Department said U.S. personal spending fell by 0.3 percent …

Closing the Gates of Hedge Hell

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Hedge funds are fed up with clients redeeming their money:

Dozens of hedge funds have told investors they cannot get their money back right now as managers try to limit a wave of redemptions to safeguard all their clients' investments -- as well as their own futures.Only a few months ago, hundreds of the world's estimated 9,000 hedge fund managers made it tough for wealthy investors to put money into their funds by requiring high investment minimums of $1 million or more and charging heavy fees.Now managers are making it hard for investors to get out."Everyone is looking at their gate provisions (mechanisms that limit redemptions) and what rights they have to close their gates," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is a phenomenon that has been occurring for some time and is picking up pace now."On Thursday, Knight Capital Group's Deephaven Capital Management halted redemptions at two of its hedge fu…

Sunny Days Ahead But Pension Storm Looming

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The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era:

``Downside risks to growth remain,'' the Federal Open Market Committee said today in a statement in Washington. ``Recent policy actions, including today's rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.'' Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. Today's decision follows the half-point reduction the Fed coordinated with the European Central Bank and four other central banks on Oct. 8. Borrowing costs were pared today in Norway and China. The cu…

Sayonara Carry Trade Turmoil?

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It looks like the lambs stopped screaming, for now. The Dow Jones industrials soared nearly 900 points yesterday in a spectacular rally. The Dow and the Standard & Poor's 500 index each shot up nearly 11 percent:

"There is nothing fundamental that came out today or yesterday that would take it up or down. We're all groping for something meaningful to talk about," said Bob Andres, chief investment strategist at Portfolio Management Consultants. "The market is exhausted from going down."

The explosive rally in stocks happened on a day where a key measure of consumer confidence fell to a record low:
The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index plummeted to 38 in October from an upwardly revised reading of 61.4 in September. Last month's decline brings the index to its lowest level since its inception in 1967."Consumers certainly appear to think the sky is falling," said Adam York…

Carry Trade Carnage

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Wall Street has ended another highly volatile session with a big last-minute loss. The Dow Jones industrial average skidded 203 points to its lowest close in 5 1/2 years, with almost all the decline coming in the last 10 minutes of the session:

The Street's back-and-forth moves were typical for a turbulent market that has seen many recent rallies evaporate -- particularly as hedge and mutual funds sell off even strong assets so they can meet investors' demands for their money back. These forced sell-offs tend to happen late in the day, when the funds figure out how much cash they'll need to meet redemptions.
As you can see, the intense selloffs that we are witnessing at the close are no flukes of nature. Both mutual funds and hedge funds are selling assets to meet their redemptions.

But it is hedge funds liquidating to meet redemptions (mostly in U.S. dollars) and the collapse of the so-called "yen carry trade" that explains why all sorts of assets are getting whac…

Currency Markets Gone "Loonie"

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While world stock markets slump this morning as the Nikkei hits a 26 year low, there is another crisis hitting global markets, the currency crisis:

Loss of confidence, coupled with wild speculation triggered by fear, also roiled currency markets, as investors continued to turn to the American greenback and the Japanese yen, and drove down currency values of many developing countries, including Brazil, Ukraine, South Korea, and even of developed countries like Great Britain, the New York Times reported on Friday.There were chilling new developments that attested to the wide scope of the world financial crisis, despite efforts by heads of state, central bankers and corporate leaders to stop the market from hemorrhaging. Cash flowed to the dollar and the yen, the two most sought-after “safe havens” in a hurricane ravaged world.As a result, the currency values of the emerging economies have tumbled. Even the British pound and European euro lost ground in the swirl of storm.Profit-seeking …