Thursday, May 31, 2012

Probe: JPMorgan’s Iksil Took Big Risks Long Before Loss

JPMorgan Chase trader Bruno Iksil, known as the London Whale because his bets this year were so large, has been a leviathan of a risk-taker since at least 2010, a person with knowledge of the matter told people at Bloomberg.

Iksil’s value-at-risk, a measure of how much a trader might lose in one day, was typically $30 million to $40 million even before this year’s buildup, said the person, who wasn’t authorized to discuss the trades. Sometimes the figure, known as VaR, could surpass $60 million, the person said. That’s about as high as the level for the firm’s entire investment bank, which employs 26,000 people.
Investigators are examining how long senior executives knew about Iksil’s swelling bets at the chief investment office before losses approached $2 billion…. His bosses may not have understood the complexity of his trades, said a person, who asked for anonymity because the information hasn’t been released publicly…..

Market Braces for Another Sucky Jobs Report

According to CNBC that does not bode well for an economy that some fear is showing signs of unexpected strains, at the same time Europe’s sovereign debt crisis   threatens financial markets and confidence.

The May employment report, due at 8:30 a.m. ET Friday, is expected to show that about 150,000 jobs were added in May, above April’s 115,000 but below the 200,000-plus reported earlier in the year. The unemployment rate   is expected to hold steady at 8.1 percent.

“It’s not really a testimony to strength in employment, and I think we’re still in a rocky period,” said Diane Swonk, chief economist at Mesirow Financial. Swonk reduced her forecast Thursday to 125,000 jobs in May from 150,000 after ADP’s private-sector payroll data showed just 133,000 jobs were added for the month….

Warning: Investor Hazard: 'Zombie Funds'

 Talbot Hall, a New Jersey facility that prepares prison inmates for release, drew an investment from a private-equity fund 16 years ago.  According to a WSJ report today the investment sits in a "zombie fund": a near-dead fund that ties up investors' money and continues charging them fees even as hopes of profiting from its remaining assets have faded.

It is a little-known horror show in the investment world. Of the roughly 10,000 private-equity funds raised over the past decade, at least 200 now qualify as zombie funds, accounting for as much as $100 billion of the $1.5 trillion currently invested in these vehicles, according to.....

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Emergency! Money flies out of Spain, regions pressured

According to Reuters Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut.

Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.

The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit.

Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago…..

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Goldman CEO Blankfein to testify at Gupta trial

Reuters reports that Goldman Sachs CEO Lloyd Blankfein will testify at the insider-trading trial of the investment bank's former director Rajat Gupta, a prosecutor said in court on Thursday.

Assistant Attorney Reed Brodsky told the judge in New York during a jury break that Blankfein could be preceded by seven other government witnesses, making it likely he would take the stand sometime next week.

Gupta is accused of leaking Goldman and Procter & Gamble Co boardroom secrets between March 2007 and January 2009 to Galleon hedge fund founder Raj Rajaratnam, who was convicted a year ago….

Nightmare: Zuck Didn’t Want to Go Public In the First Place!

As Facebook’s stock price fell below $28 today, some of Mark Zuckerberg’s worst fears are coming true, New York Magazine writes.

Back in 2010, when Facebook was a mere Internet phenomenon (as opposed to the Universal Harbinger of All Capitalist Things, Good and Bad), bankers were already whispering in Zuckerberg’s ear about the benefits of going public.

If Zuckerberg took Facebook public, advisers told him, early investors and venture capital firms would be able to cash out. Facebook could raise a slush fund to use for acquisitions. And the company could steer clear of the S.E.C.’s 500-shareholder limit, which would have forced it to reveal its financials anyway.

But despite the potential bonanza that awaited a public Facebook, Zuckerberg still didn’t want to do it.
First, there were the downsides of life in any public company — the short-termism of public investors, the carping of the CNBC crowd when stocks fall, the endless lily-gilding public CEOs are forced to do to appease analysts and investors……

JPMorgan's $40 Billion Boo-Boo

From the good people at Forbes: The penalty for laying a big egg on Wall Street used to be a 10 percent markdown.  Now, it’s 20 percent or more.  Facebook as a new issue shoulda come in at $28, not $38, and it woulda closed in the low thirties with no Congressional hearings.  Prior to its London caper, JPMorgan Chase sold at 10 times earnings power, now an also ran carrying a 7 multiplier.

Psychologists explain this as the syndrome where you fill too much space and end up battered black and blue.  Fifty years ago, you couldn’t find financials in terms of GDP.  Wall Street was a tiny village.  Now it’s 9 percent of GDP, 15 percent of the S&P 500 Index with a boatload of embedded regulators and dozens of congressmen vying for airtime and tomorrow’s headlines.

JPMorgan as a whale got noticed, then harpooned, not for $3 billion in paper losses, but $40 billion in market value blubber.  This is an enormous comeuppance.  Call it 25 percent on a market capitalization over $170 billion.   The stock’s now worth $125 billion and has given up all of its 32 percent gain this year……

Living the High Net Worth Life: Mega Homes Surge

The real-estate market is splitting in two, with wealthy buyers driving stronger growth at the top while the rest of the market continues to struggle, CNBC reports.

From $16 million log mansions in Aspen to $90 million glass-walled penthouses in Manhattan, high-end real estate is defying the broader real-estate slump and weak financial markets. In local real-estate markets with a median home price of $1 million or more, prices are up more than 10 percent year over year, and inventory is down 10 percent, according to Altos Research, the real-estate analytics firms.

Hyper-wealthy markets are doing even better. In markets with a median home price of $10 million or more, prices are up 13 percent or more. The absorption rate – the rate at which inventory is drawn down – has sped up by 11 percent this year, according to Altos....

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Insider Claims: Gupta Defense Suggests Galleon People Just “Pulling Our Todger”

Former McKinsey & Co. chief Rajat Gupta's lawyers hammered away at the credibility of prosecution witnesses yesterday at their client's trial on insider-trading charges, according to finaltneratives.

In a combative cross-examination of former Galleon Group trader Michael Cardillo—which featured as much sparring with prosecutors as it did with the witness—lead Gupta lawyer Gary Naftalis sought to show that Galleon was full of liars and exaggerators, people who puffed up their contacts and their alleged inside information. Cardillo has pleaded guilty to insider-trading and is cooperating with prosecutors, and Galleon founder Raj Rajaratnam, a longtime friend and business partner of Gupta's, was convicted and sentenced to 11 years in prison.

Gupta is charged with passing confidential tips about two companies he served as a director, Goldman Sachs and Procter & Gamble, to Rajaratnam….

Sotheby’s to auction Apple 1

For Sale: 1976 Apple 1, still runs, no keyboard, no monitor, no cabinet. Price: $180,000 or best offer.

Sotheby’s is auctioning the classic relic, hand-made by Steve Jobs and his tech partner, Steve Wozniak, the NY Post reports.. It was their first-ever commercial order for the computer that allowed users for the first time to use a keyboard to type letters on a screen.

The device was a sensation among hobbyists until retailer Peter Terrell ordered 50 to sell in his speciality chain, Byte Shop. He paid $500 apiece for the units, and the two lads cranked them out in just 30 days.

Basically a stripped-down 9-inch-by-15-inch motherboard, the computer sold for $666.66, with four manuals but no cabinet, monitor or keyboard, said Sotheby’s.  Of the 50 models made for the shop, just six still work — and the unit going under the hammer is one of the six.

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Hedge fund boss guilty of $600 million fraud

Reuters reports that Magnus Peterson, the boss of collapsed hedge fund business Weavering, has been found guilty of defrauding investors and ordered to pay hundreds of millions of dollars in damages.

London's High Court ruled that Peterson, manager of the Weavering Macro Fixed Income fund, deceived clients and breached his duty of care to investors with a strategy that could not cope with the vagaries of markets at the height of the global credit crisis.

Damages of $450 million were awarded against Peterson, seated next to a fellow defendant when the judgment was handed down on Wednesday, and three other directors….

Rothschild buys into Rockefeller wealth business

According to the Chicago Trib two of the most storied names in global finance are linking up, with Europe's Rothschild banking dynasty agreeing to buy a stake in the Rockefeller group's wealth and asset management business to gain a long-sought foothold in the United States.  Rothschild's London-listed RIT Capital Partners said on Wednesday it was buying a 37 percent stake in Rockefeller from French group Societe Generale's private banking arm, for an undisclosed sum.

The transatlantic union brings together David Rockefeller, 96, and Jacob Rothschild, 76 - two family patriarchs whose personal relationship spans five decades….

JPMorgan to Spin Out ‘Special Investments’

JPMorgan Chase is spinning out the “special investments group” from its troubled chief investment office as executives clean up the division that caused $2 billion trading losses, say people familiar with the matter according to the Financial Times report.

The unit, whose investments include LightSquared, the wireless internet provider, will be moved to the bank’s corporate division and prevented from seeking fresh investment opportunities, bankers were told on Wednesday.  Matt Zames, the new head of the CIO, announced the changes to staff. He was appointed by Jamie Dimon, chief executive, to replace Ina Drew, who ran the CIO until its losses roiled the bank this month.

The special investments group was not implicated in the CIO’s losses. But Mr Zames has decided his division should be refocused on basic asset-liability management….

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Google, Facebook fight for stake in music service

It’s a battle of the tech brands. The NY Post reports that both Google CEO Larry Page and Facebook’s Mark Zuckerberg are exploring an investment in Vevo as part of a broader partnership with the music-video service, The Post has learned.  Sources say the search giant and the social network have held talks with Vevo — the digital equivalent of MTV — about buying an equity stake as they each compete to land an ad pact with the venture.

Vevo — a joint venture of Universal Music Group and Sony Music along with the Abu Dhabi Media Co. — is valued at about $1 billion on revenue of $150 million, according to industry sources.  Vevo licenses its content to a number of partners, including Google’s YouTube and, in addition to streaming videos at and through mobile apps.

Vevo’s current deal with YouTube to host its videos in exchange for roughly one-third of the ad revenue is up at year-end. While it negotiates with YouTube to accept a smaller cut of ad sales, Vevo also has opened talks with Facebook….

Woman Who Couldn’t Be Intimidated By Citi Wins $31 Million

From Bloomberg: “…In November 2004, Hunt, now 55, joined Citi. as a vice president in the mortgage unit. It looked like a great career move. The housing market was booming, and the New York- based bank, the sixth-largest lender in the U.S. at the time, was responsible for 3.5 percent of all home loans. Hunt supervised 65 mortgage underwriters at CitiMortgage Inc.’s sprawling headquarters in O’Fallon, Missouri, 45 minutes west of St. Louis.

Hunt’s team was responsible for protecting Citigroup from fraud and bad investments. She and her colleagues inspected loans Citi wanted to buy from outside brokers and lenders to see whether they met the bank’s standards. The mortgages had to have properly signed paperwork, verifiable borrower income and realistic appraisals.

At the mortgage-processing factory in O’Fallon, Hunt was working on an assembly line that helped inflate a housing bubble whose implosion would shake the world. The O’Fallon mortgage machinery was moving too fast to check every loan, Hunt says….

U.S. Funds See Europe as a Land of Opportunities

New York hedge-fund manager Peter Faulkner spends so much time in London these days that he has a favorite after-work haunt: the Grenadier in Belgravia, the WSJ writes..

Jim Malley, his partner at P. Schoenfeld Asset Management's $3 billion credit-investment business, favors the Running Footman in Mayfair.

"I travel so much, I don't get jet lag anymore" says Mr. Faulkner, who is using London as a staging ground to attack what many investors believe will be the next great trade: Europe….

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Wednesday, May 30, 2012

Bain Capital Is B-a-a-c-k: Raising $8 billion

In case you haven’t been paying attention to the Romney headlines, it’s America's best-known private equity firm and it’s returning to market.  Fortune reports that Bain Capital has told investors that it plans to begin raising its eleventh general buyout fund sometime next month, according to sources familiar with the situation. The target will be $6 billion, plus a $2 billion "sidecar" fund for co-investments on large deals.

This is significantly smaller than the $10 billion+ Bain raised for its tenth fund in 2010 (plus a $1.8b sidecar), and reflects the firm's belief that super-sized leveraged buyouts are becoming endangered species. Particularly large take-privates. In fact, Bain began signaling such beliefs a couple years back, when it offered LPs the opportunity to cut their sidecar commitments in half.

At the time, Bain's sidecar kicked in when a deal's equity check passed the $600 million mark. This time around, it will be $400 million.  As in the past, Bain's own partners will make a substantial general partner commitment. Expect it to be around 10% of the total….

Paging Zuck! Paging Zuck! People need to hear from you!

Facebook's first couple of weeks as a public company, most observers agree, now appears to have been an unmitigated disaster.

There was the first-day NASDAQ (IXIC) trading scandal, in which many people who bought Facebook stock didn't know whether or not they owned it.  There was a selective disclosure scandal, in which Facebook and its underwriters told big investors that Facebook was having a weak second quarter but didn't tell small investors.

And, of course, there is the stock price. Facebook's stock is now down about 25% from its IPO price of 10 days ago.  That's an extraordinary decline for a company this large. And with the stock still trading at about 45X next year's consensus EPS estimate of $0.65, the shares are arguably still expensive and could therefore fall further.

Meanwhile, Facebook CEO Mark Zuckerberg is...On his honeymoon in Europe!  The world hasn't heard a peep from Mr. Zuckerberg since Facebook went public...

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Gold Investors Head for the Exits

Gold's status as a safe haven is looking shaky,the WSJ reports.  Investors often have rushed to gold during flare-ups in the European crisis. But as they weigh Greece's future in the euro zone and fret about Spain's credit-market woes, fewer investors are seeking out the precious metal.

As of Tuesday, prices were down 7% this month, falling 1.3% to settle at $1,548.60 per troy ounce, leaving gold down 1.1% for the year. The market continued to sell off on Wednesday; the most actively traded contract, gold for August delivery on the Comex division of the New York Mercantile Exchange, was down 1% ….

The Pain in Spain: EU advocates direct payments to banks as crisis worsens

Reuters reports that the European Commission threw Spain, the latest frontline in Europe's debt war, two potential lifelines on Wednesday, offering more time to reduce its budget deficit and direct aid from a euro zone rescue fund to recapitalize distressed banks.

EU Economic and Monetary Affairs Commissioner Olli Rehn said Brussels was ready to give Spain an extra year until 2014 to bring its deficit down to the EU limit of 3 percent of gross domestic product if Madrid presents a solid two-year budget plan for 2013-14, something it has committed to do.

The concession, which Madrid has not publicly requested, was on condition that Spain effectively reins in overspending by its autonomous regions, makes further financial sector reforms and recapitalizes its troubled banks....

Vanguard Cuts Fees On More Funds

Vanguard Group just dropped expense ratios on another 15 funds. Here’s the list. They’re mostly tweaks of a few basis points, but some are bigger — here according to Barrons are the biggest changes:

Vanguard Dividend Appreciation Index Fund (VDAIX) falls to 0.25% from 30%.
Vanguard Dividend Appreciation ETF (VIG) falls to 0.13% from 0.18%.
Vanguard Dividend Growth Fund (VDIGX) down to 0.31% from 0.34%
It’s also worth noting Vanguard raised the expense ratio of one product, the Vanguard Precious Metals Fund (VGPMX), to 0.29% from 0.27

Only in New York: The Most Badass High School In Brooklyn Has Its Very Own Trading Floor

There's a trading floor in the Bedford-Stuyvesant neighborhood of Brooklyn, and although no real trades go through the room, it's just as high-tech and impressive.

According to the BusinessInsider report the "floor" in question is actually a classroom in the Brooklyn Academy of Global Finance high school, equipped with a real-time stock ticker, touchscreen LCD monitors to track stocks and computer modules to help students acclimate to the business and finance-focused curriculum of the school.
The academy's special focus on business requires that students take classes like Introduction to Finance, Entrepreneurship and Accounting, and participate in an internship program. Events like a career day with Deloitte and a speakers' series with guests from the business profession are also the norm at the academy. The school is currently in its third year and plans on graduating its first cohort of seniors next year.....

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Weird’s Deep Thoughts (Wednesday Noon Edition) Investors May Be Stoking the Volatility They Fear

Long-term investors fearful of another global financial storm may be better prepared than they were before Lehman Brothers went bust in 2008, but their increasingly nervous disposition could itself be making markets more fragile, Reuters writes.

The Lehman collapse and hyper-correlated decline in risky assets everywhere challenged a key long-standing investment tenet that broad diversification of portfolios was sufficient to protect overall savings over time.  In the dark six-month period after September 2008, there were few if any havens from a synchronized slump in equity, commodities, emerging markets, high-yield debt, hedge funds and the like.  Cash, top-rated government bonds and more esoteric "tail risk" hedges such as volatility indices were the only places to hide.

And for many long-term players, pension funds and insurers with 20- or 30-year horizons, that shock may still amount to just a short-term hiatus that fundamentals will correct over time.  But less than four years later, the still-smoldering banking crisis now threatens….

U.S. Stocks Fall On Greek Woes As Home Data Disappoint

From Bloomberg: U.S. stocks fell, putting the Standard & Poor’s 500 Index on pace for its worst month since September, after a gauge of pending home sales dropped by the most in a year and concern that Greece will leave the euro grew.

A measure of homebuilders in S&P indexes sank 4.2 percent. Caterpillar Inc. (CAT) and Chevron Corp. (CVX) dropped at least 2.2 percent to pace losses in the largest companies. Morgan Stanley and Citigroup Inc. (C) slid more than 3.3 percent. Research In Motion Ltd. (RIMM) fell 6.9 percent after forecasting a surprise operating loss and hired banks to advise on strategic options. Facebook Inc. (FB) lost 0.1 percent after yesterday’s 9.6 percent slump.

The S&P 500 retreated 1.2 percent to 1,315.99 at 11:46 a.m. New York time. The benchmark gauge has fallen 5.9 percent so far in May. The Dow Jones Industrial Average slipped 146.98 points, or 1.2 percent, to 12,433.71 today. Trading in S&P 500 companies was down 14 percent from the 30-day average at this time of day....

Zuck’s Alter Ego Makes Trouble in Russia

In Russia, Facebook CEO Mark Zuckerberg faces stiff competition for the role of number one news-making internet wunderkind. According to Bloomberg his name is Pavel Durov.

Durov, 27, is the founder and CEO of VKontakte (“In Contact”), a Russian social network most easily described as a Facebook clone. Started in 2006, VKontakte has closely mimicked the American trendsetter in terms of design and functionality. With a natively Russian-language interface and a marked disregard for copyright laws -- users can freely share music and movies -- VKontakte has won a large following among users younger and less sophisticated than those of Russian Facebook. As of April, it had 16.2 million Russian users every day, compared with Facebook's 2.3 million, according to research firm TNS.

Durov's star seems mystically linked to Zuckerberg's. The most important business deals of their lives both took place this month. On May 28, just days after Facebook's IPO, Durov won the power to vote the shares of VKontakte's biggest investor, the Group, effectively giving him full voting control of the company. The arrangement is very similar to what Zuckerberg had with Facebook's Russian investor, Digital Sky Technologies…

Taleb Says Euro Breakup ‘No Big Deal’; U.S. Scariest

Nassim Taleb, author of “The Black Swan,” told Bloomberg’s best and brightest that  he favors investing in Europe over the U.S. even with the possible breakup of the single European currency in part because of the euro area’s superior deficit situation.

Europe’s lack of a centralized government is another reason it’s preferable to invest in the region, said Taleb, a professor of risk engineering at New York University whose 2007 best- selling book argued that history is littered with rare events that can’t be predicted by trends
A breakup of the euro “is not a big deal,” Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. “When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States....”

Fear of jury boredom seeps into Gupta insider trial

The judge in the insider-trading trial of former corporate luminary Rajat Gupta is worried the jury is in danger of becoming bored Reuters reports.  As the trial went into its second week on Tuesday, U.S. District Judge Jed Rakoff in Manhattan warned prosecutors and defense lawyers to "sharpen" their presentations.

Gupta, 63, a former Goldman Sachs Group Inc board member and global head of management consulting firm McKinsey & Co, is the most prominent corporate figure indicted in the U.S. government's crackdown on insider trading. He is charged with leaking corporate secrets to now-imprisoned hedge fund manager Raj Rajaratnam, who was convicted last year after a high-profile trial.
But Rakoff suggested the Gupta case may be far from scintillating for the jury, which aside from a handful of wiretap recordings, has been inundated with telephone logs, corporate governance guidelines, boardroom minutes, emails and instant messaging records.

"I am in awe of our jury for being attentive," Rakoff said in court while jurors were on their mid-afternoon break. He said the bulk of evidence was asking witnesses to look at "document X" or "document Y." "We need to find a way to sharpen the presentation on both sides and get it more focused," said Judge Rakoff….

Re: Facebook - For Once, The Investment Bank Was Behaving Ethically

In an IPO an investment bank takes a fee from a business to place that stock in financial markets.  Or, more precisely, they take a fee from a business to sell part of that business.  Their customer is the company doing an IPO and they have a legal and moral obligation to get the highest price for the company they are selling. No more. No less.

However investment bankers have, as a practical matter, a desire to expand and improve their franchise. Their franchise consists of a huge number of buy-side investors (some retail, some institutional) who will buy from them whatever they sell so long as it comes in a prospectus….

Jam-packed day at Gupta trial

Ex-Galleon Group trader Michael Cardillo testified yesterday in the trial of Rajat Gupta that he bought shares of JM Smucker, the maker of Smucker’s jams, after getting a tip that the company was going to buy Procter & Gamble’s coffee business, the NY Post reports.

In his second day on the stand, the 35-year-old trader turned prosecution witness said RK Rajaratnam, the brother of convicted Galleon boss Raj Rajaratnam, told him the tip “was coming from Raj’s guy at P&G.”  Cardillo said he didn’t know who “Raj’s guy” was at the time, but prosecutors believe his testimony will link the leak to Gupta, accused of tipping Raj to confidential info at Goldman Sachs and P&G, when he served on their boards.

Cardillo said he executed trades for RK, who snapped up as much as 25 percent of Smucker shares after learning of the tip. Cardillo said he also bought Smucker stock for himself and fellow portfolio manager Tim Pierotti...

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Tuesday, May 29, 2012

Glitches Gum Up New Goldman Trade Platform

The Financial Times reports that Goldman Sachs has been forced to delay the launch of its new corporate bond trading platform after a series of “logistical issues” beset the investment bank’s foray into electronic fixed-income trading.

The delay highlights the technical difficulties facing big Wall Street banks as they build new electronic trading platforms – a vital component in their response to more competitive markets and new rules requiring increased trading transparency.
GSessions was expected to start trading in mid-May but encountered difficulties including “trade reporting problems," according to a person familiar with the platform….

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The New Death-of-Equities

According to Barrons’ Michael Santoli: Reports on the death of the public stock investor may only be slightly exaggerated. But these reports have certainly gotten loud, shrill and rife lately.

The Financial Times last week, in a much-discussed page one tease for a long article about investors' disdain of stocks, asked, "The Death of Equities?" Like the infamous August 1979 "Death of Equities" Business Week cover it echoes (which eventually proved a vivid contrary indicator), the FT piece is more descriptive of risk-averse institutional attitudes than an argument for why stocks ought to be shunned.

A day earlier, the tech entrepreneur, investor and basketball-team owner Mark Cuban wrote on his blog: "Say goodbye to the individual investor on Wall Street. Whatever positive impression they had of the IPO market and the stock market in general was just torched to the ground."


Facebook Stock Sinks to New Low Amid Rumors of Opera Browser Acquisition

According to the Mercury News Facebook stock fell to its lowest level in more than a week of trading Tuesday as analysts and observers focused on the company's reported interest in purchasing the Opera Web browser.

The world's most popular social network has struggled on Wall Street since its record-breaking May 17 initial public offering. In Tuesday morning's trading session, shares fell below $30 for the first time since the Menlo Park company sold more than 420 million shares at $38 apiece in an IPO that gave the company a record valuation of $104 billion.

Most of the chatter around Facebook centered around a Pocket-Lint report late last week that suggested the company was interested in purchasing Opera, a Norwegian independent company with a Web browser popular on mobile devices.
Analysts weighed in on the report Tuesday morning, saying the purchase would cost Facebook more than it has agreed to pay for San Francisco photo-sharing app Instagram, estimated at $1 billion but constantly moving as part of the price will be paid in stock.  Norway's top bank, DNB, said a purchaser would have to pay at least $1.35 billion for the company,…

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Grim News: Yale Grad Who Took On Wall Street Recruiters Died In A Car Accident This Weekend

Marina Keegan, a class of 2012 Yale graduate, who took on the hedge fund and investment banking recruiting process on college campuses last year in an opinion piece for Dealbook, died in a car accident Saturday, the Yale Daily News reports. She was 22.

Keegan was an English major and president of the school's College Democrats.   She was also an active member of the Occupy movement taking on Wall Street campus recruiting practices….

Whistleblowing B Of A Quite A Bit More Lucrative Than Working For B Of A

From Bloomberg: A former Countrywide Financial Corp. manager whose fraud suit contributed to the mortgage industry’s $25 billion settlement with federal and state regulators received about $14.5 million for his efforts, his lawyers said.

Kyle Lagow, an appraisal manager for Countrywide from 2004 to 2008, claimed that Countrywide inflated the value of homes to support bigger loans, according to a statement today from Seattle-based law firm Hagens Berman. Charlotte, North Carolina- based Bank of America Corp. (BAC) bought Countrywide in 2008 to save it from collapse as defaults on home loans soared.
Lagow’s information helped prompt a $1 billion settlement of Federal Housing Administration claims announced by Bank of America in February, according to the law firm. The sum was included in the nationwide settlement reached that month….

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Only in America: Harvard Alumni Are Embarrassed To Admit They Went To Harvard

Go figure. One of the more embarrassing and socially awkward things a human being can do is admit he went to Harvard. 

That's right, it's probably among the worst #FirstWorldProblems a person can have, because once you drop the "H-Bomb" people look at you differently, treat you differently, and think of you differently. Yup, Harvard alumni are truly embarrassed about fessing up to their alma mater, The Boston Globe revealed today.

The Globe interviewed dozens of alumni who all admit when asked some derivative of "Where did you go to college?" they answer, "Oh, near Boston….."

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You Cheated, You Lied: $1 Billion Hedge Fund Charged With Misleading Investors

....And another fund bites the dust.  From the Boston Globe: The Securities & Exchange Commission charged a Miami hedge fund manager who used to run a $1 billion hedge fund that specialized in making asset-backed loans in Latin America with misleading investors regarding how much of his own money he had invested in the fund.  Javier Guerra, who ran Quantek Asset Management and its Quantek Opportunity Fund, has agreed together with Quantek to pay $2.7 million to settle the charges. In addition, Guerra will be barred from the securities industry for five years. At its height prior to the financial crisis, Quantek Opportunity had $1 billion of assets.

The Fed’s enforcement action vindicates the efforts of Jason Papastavrou, who runs Aris Capital Management and a fund of hedge funds that invested in Quantek. Papastavrou clashed with Guerra, bringing a lawsuit in 2009 that claimed Guerra had engaged in self-dealing and fraud. Yet when Papastavrou tried to work with other investors in the Quantek hedge fund, many of those investors directed their anger at Papastavrou and pleaded with him to stop his crusade against Guerra.

In its enforcement action, the SEC said that Quantek Asset Management misled investors about fund managers like Guerra having “skin in the game” and that Quantek’s execs never invested their own money in the Quantek Opportunity Fund. The SEC also claimed that Quantek kept investors in the dark about certain related-party transactions involving Guerra...

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Twitter Hedge Fund Goes Silent

Finalternatives reports that the world's first Twitter-based hedge fund has tweeted its last—and quietly, at that. Derwent Capital Markets shut its much-ballyhooed $100 million hedge fund after just one month last year. The London-based firm said its proprietary trading model analysed the use of "calm" words on the social networking system to predict movements in the Dow Jones Industrial Average, with 87.6% accuracy.
But in spite of the hype that surrounded the fund's launch, and its 1.85% return in its only month last summer, one of Derwent's largest investors suggested, perhaps appropriately, that the social network-based trading system would be appropriate for crowd sourcing. So Derwent has changed gears, deciding to offer its trading signals to day traders.

The new system will overlay Derwent's Twitter-based measurements on IG Group's spread trading platform. Hawtin said he hopes to get between 3,000 and 5,000 customers, with Derwent paid a portion of IG's fees....

News Flash: Facebook Crashes Below $30

UPDATE #2: Facebook has fallen below $30 for the first time ever, hitting $29.42 this afternoon.

UPDATE: Facebook is open for trading, and it's ugly. The stock hit a new low, dipping under $31 to $30.03.

It's down 6% 30 minutes after trading began.

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Another Boo-boo: JP Morgan targeted in Japan insider trading probe

Oops! According to the Wall St Journal: JP Morgan Chase faces a new regulatory headache, as Japan's securities watchdog is probing the company for possibly leaking insider information, according to a person familiar with the matter.

JP Morgan was a lead underwriter for Nippon Sheet Glass in 2010 when the Japanese glass maker issued new shares, and the company's stock dropped sharply in the days leading up the announcement.

Japan's Securities and Exchange Surveillance Commission (SESC) announced Tuesday that it was seeking to fine a Japanese asset-management company for short-selling the shares based on information obtained illegally from an underwriter in advance of the offering.

The SESC did not name the underwriter under suspicion. ButJP Morgan was one of just two underwriters, and the other, Daiwa Capital Market, issued a public statement saying it had no involvement in the case.

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Madoff Case Is Paying Off for Trustee ($850 an Hour)

According to the NY Times reports Irving H. Picard, the court-appointed trustee seeking to recover funds for the victims of Bernard L. Madoff’s multibillion-dollar Ponzi scheme, has been described as a modern-day Robin Hood. For nearly four years, he has been working to pay back those who were swindled by Madoff, some who lost their entire life savings...

Yet a look at recent court filings shows Picard has had much more success collecting money for himself and a dozen law firms and consultants than any victim of Madoff’s crime.

So far, Picard’s efforts have created a whopping $554 million in legal and other fees. How much have Madoff’s victims actually received from all of the cases and motions he’s made? Only $330 million. And how much does Picard estimate the fee spigot will pour out by 2014? A mere $1 billion.

Read all about it at

Screw-Up: Funds Make Wrong-Way Bets Before Price Slump

Speculators raised bullish bets on commodities before signs of Europe’s deepening debt crisis and slowing Chinese growth drove prices lower for a fourth consecutive week, the longest slump since September according to Bloomberg.

Money managers boosted net-long positions across 18 U.S. futures and options by 9.5 percent to 675,362 contracts in the week ended May 22, government data show. The Standard & Poor’s GSCI Spot Index of 24 raw materials reached a five-month low on May 23. A gauge of net positions for 11 U.S. farm goods surged 21 percent, the most since February, before agriculture prices tracked by S&P posted the biggest weekly loss in eight months.

The euro dropped to the lowest since July 2010 on May 25 after Catalonia’s president repeated his call for Spain’s central government to help regions access funding and S&P cut the credit ratings for five of the country’s banks. China’s biggest lenders may fall short of loan targets for the first time in at least seven years, three bank officials said, and the nation’s State Council refrained from backing Premier Wen Jiabao’s push to expand credit…..


Fed Official: U.S. Ready for Europe Fallout

The U.S. Federal Reserve is well equipped to deal with any fallout from Europe's escalating debt crisis, a top official told the WSJ.

"There's absolutely no reason for people in the United States to get all in a dither," Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview with The Wall Street Journal.   Plosser said that in the short run, uncertainty in Europe might even work in the U.S. economy's favor, via lower U.S. interest rates and energy prices.

Worries over Greece could lead to more global investment funds being parked in the U.S., boosting liquidity….

Read all about it at

And Now For Something Completely Different: Check in married and then check out single

You’ve heard of the Roach Motel – where guests check in but they never check out… Well, according to MSNBC, at the Divorce Hotel, couples can uncouple in the easiest way possible.  Jim Halfens, a Dutch entrepreneur, wants to introduce “Divorce Hotel,” a weekend program for couples seeking a speedy split-up, to the United States.

The American marriage, it seems, is on the rocks. The common line — true or not — is that half of all marriages in this country end in divorce.  So here comes a plucky entrepreneur from, of all places, the Netherlands, with a wild, you’ve-got-to-be-joking plan to profit from the sorry state of so many American unions.

It’s called Divorce Hotel, and the idea is this: Check in on Friday, married. Then, with the help of mediators and independent lawyers, check out on Sunday, divorce papers in hand, all for a flat fee.
And — why not? — toss in some reality TV for good measure.

Unusual as it sounds, the Divorce Hotel concept is up and running in the Netherlands, where its mastermind, Jim Halfens, is helping unhappy marrieds divorce en suite....

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Vale Sells Colombian Coal Mines to Goldman for $407 Million

Vale SA (VALE3), the world’s largest iron-ore producer, agreed to sell its thermal coal assets in Colombia for $407 million to a unit of Goldman Sachs Group  as it focuses on metal production.  The divestiture includes Vale’s El Hatillo coal mine, the Cerro Largo deposit, a port facility on the Atlantic coast of Colombia and an 8.4 percent stake in the railway that links the mines with the port, the company told Bloomberg….

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Monday, May 28, 2012

Gupta Could Be Sucky Witness

With his swept-back hair, square jaw and soothing voice of a television anchor, former Goldman Sachs Group Inc. GS -0.17% director Rajat Gupta could make a compelling witness at his own criminal insider-trading trial, legal experts say.  Or, according to a Wall St Journal report, it could be too big a gamble.

The biggest potential drawback for Mr. Gupta, the 63-year-old former head of consulting firm McKinsey & Co., is that by testifying he could undermine his lawyer's main strategy: punching enough holes in a circumstantial prosecution based on phone and trading records to win an acquittal.

"The moment someone takes the stand, he's held to a different burden," said Susan Brune, a New York defense lawyer who won the acquittal of a Bear Stearns Cos. hedge-fund manager by raising doubt about the charges, without having her client take the stand….

Find out more at

This Is The Report That Clobbered Spanish Markets Today

From BusinessInsider: Spanish markets got clubbed today, as PM Mariano Rajoy was announcing a new nationalization scheme for Bankia.  But that was mostly expected.  What freaked out investors was a new report in El Mundo that suggested a new, much-more expensive fire needed to be put out.

Citi Reports suggest Spain may need an extra €30bn for banks - Spain may need another €30bn to clean up its banking system on top of the €19bn required by Bankia according to El Mundo…..

Europe Turns To U.S. for Loans

In the latest symptom of Europe's financial turmoil, the region's riskier companies are bypassing banks and investors at home and turning to the U.S. for loans.

European companies borrowed some €14.4 billion (about $18 billion at current rates) in the U.S. leveraged-loan market this year through Friday, more than double the €6.7 billion for all of 2011, according to data from S&P Capital IQ LCD. That is the highest amount since at least 2007, the height of the last boom in leveraged lending, when full-year loan volume was €12.2 billion, according to S&P….
That’s it for us today. We’re off for the rest of the Memorial Day holiday.  See you on Tuesday!

And Now For Something Completely Different: At the Neighborhood Trader Joe's, The Chocolate Chip Panic

Looking in her cupboard last week, Shulamis Labkowski got a morsel of unwelcome news.  The mother of three from Oakland, Calif., inspected three bags of Trader Joe's semisweet chocolate chips, a staple in her kosher kitchen. They were alike in all ways but one: Two of them had a small D on the label, meaning they were classified as dairy under Jewish dietary laws.  Mrs. Labkowski bought 40 packets when she heard about the switch.

The changed label was tough to swallow. Kosher law forbids mixing meat and dairy at any time, but Trader Joe's chips used to be deemed "pareve," meaning they could be eaten with either meat or dairy meals. An avid baker, Mrs. Labkowski tore through five to seven bags a week to make treats without worrying about running afoul of the rules....

As message boards and blogs burned with news of the switch last week, customers across the U.S. began hoarding the last bags of pareve chocolate chips. Now, empty shelves are all that is left at many Trader Joe's outposts….

A Safe Haven You’ve Never Heard Of…

From the Wall St Journal: In moments of trouble, people may seek solace at the bottom of a beer glass. But for many investors buffeted by the Continent's debt crisis, global beer companies could represent salvation.

Brewers are more exposed to bouts of weak discretionary spending by consumers than tobacco firms, for example, but they still are a defensive play for those seeking dependable returns. Global beer companies, with their diversified portfolios of branded drinks at different prices across both developed and emerging economies, are well-placed to weather regional economic downturns.

The share-price performance of the sector's "Big Four" so far this year bears this out. Anheuser-Busch InBev ABI.BT -1.83% is up 16%, while Heineken HEIA.AE -1.14% and Carlsberg CARL-A.KO +1.50% are 11% and 10% higher, respectively. SABMiller SAB.LN -0.33% brings up the tail with a still-robust 6% gain, far better than the broader European market.

"They are able to deliver reliable double-digit earnings-per-share growth," says Bernstein Securities analyst Trevor Stirling….

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Fearless Factoid of the Week: Wall Street Titans Outearned by Media Czars

Think Wall Street is the land of plenty when it comes to compensation? Think again. If 2011 pay to top executives is a window into the Wall Street compensation machine, then compared with other industries -- the entertainment media, for instance -- the bloom is definitely off the rose, according to the kind folks at Bloomberg.

In 2011, the best-paid Wall Street chief executive officer was Jamie Dimon at JPMorgan Chase & Co. (JPM) He got $23 million in total compensation. John Stumpf of Wells Fargo & Co. (WFC) got $17.9 million, while Lloyd Blankfein at Goldman Sachs Group Inc. (GS) had to settle for $16.2 million. Although Vikram Pandit at Citigroup Inc. (C) received $14.9 million, 55 percent of Citigroup’s shareholders voted for a nonbinding resolution that would have denied him that pay. James Gorman at Morgan Stanley (MS) took home $10.5 million, a pay cut of 25 percent from the previous year. Brian Moynihan at Bank of America Corp. got $8.1 million….

European Firms Plan for Greek Unrest and Euro Exit

The planning, says Dixons chief Sebastian James, may look alarmist but it's good to be prepared.  Company bosses around Europe agree.  As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to the day the earth stood still also known as a complete meltdown of the financial system.

Those preparations include sweeping cash out of Greece every night, cutting debts, weeding out badly paying customers and readying for a switch to a new Greek drachma if the country is forced to abandon the euro.

"Most companies are getting ready and preparing for a Greek exit and have looked at cash, treasury, currency issues, even fall out shelters," said Roger Bayly, a partner at advisory and accountancy firm KPMG.

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10 Awesome Things About The American Economy That Everyone Should Remember

From BusinessInsider: 
11.  A manufacturing renaissance is boosting GDP.  For years as China rose and U.S. manufacturing declined, people said those jobs were gone for good. But since 2010, U.S. manufacturers have added some 489,000 jobs. Gains are coming from….

22.      GDP per capita ranks in the top 5% of the world.  Of 227 countries and territories ranked by the CIA World Factbook, U.S. GDP per capita remains in the top 5 percent, behind natural resource heavy waits like Qatar and the U.A.E….

33.      Easy access to credit and capital markets.  American consumers and businesses have relative ease when accessing credit markets — whether in opening a credit card or obtaining a revolving credit facility….

Murdoch private eye targeted U.S. hedge fund boss

A private detective working for Rupert Murdoch's British newspapers used a legally questionable tactic to obtain a hotel bill that a New York financier ran up at one of London's swankest hotels, records reviewed by Reuters show.

A database of business records compiled by British government investigators shows that some time before his arrest in March 2003, private investigator Steve Whittamore, or someone working for him, misrepresented themselves to obtain from Claridge's Hotel a copy of a bill belonging to Robert Agostinelli, an American who runs the Rhone Group private equity firm.

Agostinelli did not respond to messages left for him at Rhone Group offices in New York and London.  He is a former senior partner at Goldman Sachs (GS.N) and Lazard and ranks among the richest financiers in the world….

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Man’s FRM deal has only just begun

From Man Group’s announcement last week that it plans to acquire fund of funds rival FRM is the largest deal in recent years in a part of the market that is ripe for consolidation.

While assets in global hedge funds reach new highs, the fund of funds industry is 20% off its 2007 peak. Fees have come under pressure and many institutions have decided to cut out the second layer of fees and go direct.

Max Gottschalk, co-founder and head of Asia-Pacific at fund of funds firm Gottex Fund Management, which acquired alternatives manager Penjing Asset Management this month, said: “In the current market environment, consolidation makes a lot of sense but in the fund of funds space, transactions are not always easy to complete…..”


Who Says Justice is Fair? Morgan Stanley Exec Seeks to Have Taxi-Stab Case Dismissed

A judge agreed to hear evidence to dismiss a hate-crime case against a Morgan Stanley exec charged with stabbing a New York City taxi driver during a fare dispute., the WSJ reports.

William Bryan Jennings didn’t speak during the brief pre-trial hearing in Superior Court on Friday. His attorney, Eugene Riccio, moved for a hearing on the motion to dismiss, to be heard on June 21.

Jennings, Morgan Stanley’s co-head of North American fixed-capital market, waived his right to a jury trial earlier this month in favor of trying his case before a judge. He entered a plea of not guilty during a court appearance in March.   Jennings was arrested on Feb. 29 and charged with second-degree assault, theft of services and intimidation by bias or bigotry — considered a hate crime — against taxi driver Mohamed Ammar in connection with a December dispute over a taxi fare...

Read all about it  at

Hedgies lose their magic touch

When the housing market started to crater in 2007, a small coterie of hedge-fund managers who had bet the bubble would burst cashed in their chips.  According to the NY Post They’d made big wagers that the crazy lending could not last, and they were right. The returns were staggering — anywhere between 100 percent and 500 percent.

Four years later, hubris, poor timing, bad judgment and the law of diminishing returns have pummeled the high rollers. Most of them now manage less money than they did four years ago when the big winnings bolstered their coffers.

Led by John Paulson, whose subprime short is the stuff of legend, these men became the new rock stars of the investment world. Other subprime winners included Phil Falcone of Harbinger Capital Management, John Burbank of Passport Capital, Steve Eisman, then of FrontPoint Partners (now Emrys Partners) and Kyle Bass of Hayman Capital Management...


Sunday, May 27, 2012

Why American Natural Gas Could change Everything

From Forbes: ‘It was the best of times; it was the worst of times’ – never a truer word spoken for the gas industry. Whilst Chesapeake is fighting for its life in the US, spot gas prices are reaching all-time highs in Asia. In this ‘Tale of Two Cities’ you’ll get $2/MMBtu in New York (Henry Hub) and around $20/MMBtu in Singapore (Asian spot). The divorce between the Atlantic Basin and Pacific Basin couldn’t be any starker – the question is whether these spreads will incrementally narrow under inexorable laws of economics, or whether politics will throw a spanner in the works. Depending on how you answer this ‘convergence question’ will have dramatic implications for hydrocarbon asset prices in the years to come. Not to mention the contours of international energy relations.

‘Convergence’ makes most sense for the US of course – Chesapeake’s foibles merely mask a structural problem for American gas players; they are selling their gas for a pittance in the US when they could be making an absolute killing overseas, roughly to the tune of $1bn spreads a day in Asia. Whatever the economic merits of keeping ‘US gas for US consumers’ improving balance of payments, fast tracking coal to gas for emissions, as far as gas players are concerned, it’s still a damp squib. Great, they’ll get $5/MMBtu rather than $2/MMBtu with some unfortunate mothballing / defaults in between. Not exactly the giddy heights of Asian LNG…..


What the world needs now: A Facebook Phone

No seriously folks.  The NY Time poses the question: can a software company build its own smartphone? We may find out soon.  This past week, Google completed its acquisition of the hardware maker Motorola Mobility for $12.5 billion, which could lead to the search giant’s making its own smartphone. But another software titan might be getting into the hardware game as well: Facebook.

Employees of Facebook and several engineers who have been sought out by recruiters there, as well as people briefed on Facebook’s plans, say the company hopes to release its own smartphone by next year. These people spoke only on the condition of anonymity for fear of jeopardizing their employment or relationships with Facebook.

The company has already hired more than half a dozen former Apple software and hardware engineers who worked on the iPhone, and one who worked on the iPad, the employees and those briefed on the plans said.

This would be Facebook’s third effort at building a smartphone, said one person briefed on the plans and one who was recruited. In 2010, the blog TechCrunch reported that Facebook was working on a smartphone. The project crumbled after the company realized the difficulties involved, according to people who had worked on it. The Web site AllThingsD reported last year that Facebook and HTC had entered a partnership to create a smartphone, code-named “Buffy,” which is still in the works…..

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