Thursday, January 31, 2013

How Street's Brutal Compensation Crunch Bitch-Slapped A Top Firm

Bloomberg News' Annette Weisbach and Nicholas Comfort report that Deutsche Bank's bonus pool for 2012 has decreased by 11% compared to 2011. This time around, the bank's bonus pool is $4.3 billion.
This was to be expected, but it still hurts. In July, when the bank announced that it would lay off up to 1900 people, it also said that it would be reviewing compensation practices in order to "address... relative balance between rewards for shareholders and those for employees."

As if on cue, right before Deutsche made that announcement, bank analyst Meredith Whitney said Wall Street should expect more job cuts and lower compensation across the board.  And in today's Q4 earnings release, the bank used the exact same language to address the compensation cuts that have no been brought to fruition. Deutsche talked about a "deep cultural change" ….

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Chirping mad over A ‘SAC’ed $1M nest egg

From the NY Post: Ronald Weiland realized he’d made a bad bet in 2008, when he lost his $1 million nest egg trading shares of drug company Elan. What he didn’t know then was that the cards were stacked against him.  Weiland now believes that he and other investors were played by Steve Cohen’s SAC Capital Advisors when the hedge fund giant — acting on information from a former trader accused of insider trading — abruptly dumped its huge long position in Elan and Wyeth and started shorting both stocks.

“They had information that I didn’t have access to,” said Weiland, a 53-year-old former consultant for Arthur Andersen. “It’s totally a matter of seeing very wealthy people being able to game the system.”

The big trading swing that netted $276 million for SAC and led to the arrest of former trader Mathew Martoma has also landed the firm in hot water. Elan investors have filed at least two lawsuits against SAC, accusing the firm of costing them millions, and several class-action law firms are looking to tee up more….

Hail The New King Of Wall Street!

Richard Handler’s $19 million pay package — and $58 million in future pay — is the latest eye-popping Wall Street bonus story but it really shouldn’t come as any surprise.

Handler, the chairman and CEO of Jefferies Group  engineered the sale of the company to Leucadia National Corp. earlier this year. The deal, valued at $2.48 billion in stock at the time of the announcement in November, was hailed for giving the brokerage firm ample capital — and shareholders a 24% premium.

Unlike other CEOs, Handler has been relatively modest when it comes to pay. He rejected a $4.9 billion bonus last year after Jefferies stock tumbled over fears of exposure to the European debt crisis.

Moreover the new payout is “subject to 100% forfeiture for one year and a lesser scale of forfeiture over a period of four years from the date of grant, and must be repaid in whole or in part if a forfeiture event occurs,” according to a regulatory filing…..

No tears for little banks’ fears

 We've had more banks than we need for decades. As Chicago Business reported, 249 Chicago banks compete for $314 billion in local deposits, compared with 231 banks vying for $1.16 trillion in New York. That's ridiculous.

As those numbers suggest, our plethora of banks has nothing to do with local demand for banking services. We don't save or borrow more than people in the rest of the country.  This being Illinois, you won't be surprised to learn that politics helped create our small-bank surplus. Many smaller banks in Illinois owe their existence to misguided state laws that barred branch banking for most of the 20th century. Intimidated by the powerful “community bank” lobby, state legislators didn't lift the final restrictions on branching until 1993.

Branch banking restrictions insulated small-town and suburban banks against competition from big downtown Chicago banks. Barred from branching out into the suburbs, the Loop bankers were forced to venture elsewhere in search of growth.  This led to disasters like the old First National Bank of Chicago's foray into South America and Continental Illinois' oil patch fiasco….

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The funds that saw Apple's nosedive coming

From Yahoo: The slump in Apple Inc's share price from its September high has badly dented the returns of hundreds of mutual funds that had maintained outsized holdings of the stock. But some went sour on the iPhone-maker just in time.

Of the 321 funds that had more than 5 percent of their assets in Apple shares at the beginning of 2012, 53 of them - or slightly more than 16 percent – looked at  the Tarot cards and significantly cut back their weighting of the company before the plunge gained momentum, according to data from Morningstar.

Whether it was a case of simple risk management, concerns that the company's share price had peaked, or a bit of luck, fund managers who drained Apple from their portfolios helped drive down the price of the stock. As a result of their early shift in sentiment, they appear quite prescient now….

Blackberry in the Last Chance Saloon

From WSJ: Research In Motion Ltd. unveiled two new BlackBerry phones on Wednesday crucial to the company's turnaround, but the first of the those devices won't be available in the crucial U.S. market until mid-March.

In an interview ahead of a BlackBerry 10 launch event in New York, RIM Chief Executive Thorsten Heins said the first of two phones—a touch-screen-only device called the Z10—will be available in the U.K. later this week, and in Canada and the United Arab Emirates next week.

Both of those markets are important for RIM, but are small compared with the U.S., which has many more potential customers and typically bigger profit margins…

Wednesday, January 30, 2013

Death and the Iowan: Futures Fraudster expects to die in the Slammer

Russell Wasendorf Sr., who admitted looting more than $100 million from futures broker Peregrine Financial Group, expects to die behind bars even if a judge ignores prosecutors and imposes a lenient sentence at a hearing on Thursday he told Reuters.

Prosecutors say the amount Wasendorf stole was closer to $215 million and have asked a federal court in Iowa to sentence the 64-year-old to 50 years in prison for the scam that  affected tens of thousands of customers.

Wasendorf said in July that he had bilked clients over nearly 20 years, faking bank statements and lying to regulators, employees and his closest family members….

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Bernanke Dissatisfied With Growth Will Press on With Pace of QE

Fed Chairman Ben S. Bernanke signaled he isn’t close to easing up on $85 billion in monthly bond purchases to spur a stalled economy and bring down 7.8 percent unemployment. The Federal Open Market Committee said in a statement yesterday that growth, while slowed by “transitory factors,” faces “downside risks” even after strains in global financial markets have eased. The expansion will pick up and unemployment will fall in response to “appropriate policy accommodation,” Fed officials told Bloomberg in a statement after a two-day meeting.

Bernanke and his FOMC colleagues are deploying record stimulus through an open-ended expansion of the Fed balance sheet after determining that the benefits from stoking a flagging economy outweigh any risk of financial instability or higher inflation….

Honey, They Shrunk The Economy!

But are Paul Ryan and his good buds happy now?

From Associated Press: The US economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a combined 2.6 percentage points from GDP.

But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, could raise fears about the economy's durability in 2013. That's because deep government spending cuts will automatically slash domestic and defense programs starting in March unless Congress reaches a deal to avert them….

Dr. Doom and Gloom: Better Enjoy the Market Rally While You Can

The author of the widely followed Gloom Boom & Doom Report said the current rally, which has seen the Standard & Poor's 500 gain more than 5 percent in 2013 and 12 percent since its November 2012 low, is getting tired and will run out of steam soon.

"We are very overbought, but it is also possible that we have a mild correction in February and then a further increase in stock prices," Faber said on "Closing Bell."  He added it would be "something that would be similar to '87 where in the first half of the year until August the market went up by 41 percent (only) to lose 40 percent in months in October and November. So it's a possibility that we have a lot of volatility this year in equity prices."

Though he is more widely known for his dour outlook on stocks and the global economy, Faber occasionally has advocated for the U.S. stock market.Now, though, he is unwinding his long positions.  Indeed, there are some signs that investors have amped up their bullishness.  Money flows to mutual funds that track stocks have soared to record levels of $55 billion in January, and sentiment surveys are showing a strong positive bias for equities.

"There is a chance that corporate profits will disappoint in 2013. But, by the way, there could also be some geopolitical problems, he said....... 

Read all about Dr. Doom at

Which Fund Manager Likes To Pair His $5,000 Bottles Of Wine With A Couple Bacon-Wrapped Hot Dogs?

From Dealbreakers’ one-and-only Bess Levin: During the years of 2005-2009, I had the amazing experience of being a sommelier at Veritas Restaurant. At this time Veritas, arguably, had the best restaurant wine list in the US. I opened more great wines during those four years than I will probably ever open again in my career. One gentleman that opened more than half of those amazing wines was a hedge fund manager. He was a common fixture at the bar and had a deep love for old burgundy. He preferred large formats, which meant he would usually need help drinking the wine, a role I was happy to take on. He also loved Crif Dogs, which we would have delivered for him late in the evening. One night, over a few B.L.T. Dogs and a magnum of Domaine Leflaive Batard-Montrachet 1986, he starts eyeing the vertical of Henri Jayer. It was a producer he had had before, but only a few times. This was also the spring of 2007 and Mr. Jayer had passed away only a few months earlier. After a bit of discussion, he decides to go with Vosne Romnee Cros Parantoux 1985, a steal at $5,000. This was the first, and at this point in my life, the only time I’ve ever had this wine. To say the wine was magical would be an understatement, and Crif Dogs have never tasted the same…

Read all about it at

Psst...This Is What Your Co-Worker Is Being Paid

From WSJ: Office workers have grown accustomed to knowing the intimate details of each other's lives—from a colleague's favorite cat video to a boss's vacation fiasco.

Now a small but growing number of private-sector firms are letting employees in on closely held company secrets: revealing details of company financials, staff performance reviews, even individual pay—and in doing so, walking a tightrope between information and TMI, or too much information.

The warts-and-all approach, most often found in startups, builds trust among workers and makes employees more aware of how their particular contribution affects the company as a whole, advocates say…..

Grim News: The Body Of A Missing Portfolio Manager Found Buried Outside Tokyo

Police in Japan discovered the body of a missing portfolio manager and what is believed to be the body of his wife near Tokyo two days ago, Bloomberg News reported.

The deceased man has been identified as Makoto Shimomi, 51, a Japanese fund manager who regularly traveled between Japan and Switzerland.  He and his wife Mie Shimomi, 48, went missing back on December 7…. 

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US economy shrinks for first time in three-and-a-half years

OMFG shrinkage!  From Associated Press: The US economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a combined 2.6 percentage points from GDP.

But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, could raise fears about the economy's durability in 2013. That's because deep government spending cuts will automatically slash domestic and defense programs starting in March unless Congress reaches a deal to avert them….

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Only In America: It Takes Planning, Caution to Avoid Being 'It'

WSJ reports: Group of Men Have Played Game of Tag for 23 Years; Hiding in Bushes, Cars....Earlier this month, Brian Dennehy started a new job as chief marketing officer of Nordstrom Inc. JWN +0.27% In his first week, he pulled aside a colleague to ask a question: How hard it is for a nonemployee to enter the building?  Mr. Dennehy doesn't have a particular interest in corporate security. He just doesn't want to be "It."  Mr. Dennehy and nine of his friends have spent the past 23 years locked in a game of "Tag."

It started in high school when they spent their morning break darting around the campus of Gonzaga Preparatory School in Spokane, Wash. Then they moved on—to college, careers, families and new cities. But because of a reunion, a contract and someone's unusual idea to stay in touch, tag keeps pulling them closer. Much closer.

The game they play is fundamentally the same as the schoolyard version: One player is "It" until he tags someone else. But men in their 40s can't easily chase each other around the playground, at least not without making people nervous, so this tag has a twist. There are no geographic restrictions and the game is live for the entire month of February. The last guy tagged stays "It" for the year.

That means players get tagged at work and in bed. They form alliances and fly around the country. Wives are enlisted as spies and assistants are ordered to bar players from the office…..

"You're like a deer or elk in hunting season," says Joe Tombari, a high-school teacher in Spokane, who sometimes locks the door of his classroom during off-periods and checks under his car before he gets near it…..

Herbalife preps online counterattack against Ackman

Get ready for... '' 

According to the Post Bill Ackman has gotten under Herbalife’s skin.  The nutritional supplements company that Ackman dissed as a “pyramid scheme” has purchased three domain names related to the hedge fund tycoon.

Herbalife has owned “,” “” and “” since Jan. 18, according to Go Daddy’s database of registered domain names. So far, the sites are inactive.

The domain names appear to be part of a bigger Internet and social media campaign kicked off after Ackman’s paid search engine ad “” topped Google’s search rankings about the company....

Don't stop reading now.  Just when you're getting to the "good" parts.  Go to

Government Drops Insider Trading Probe

From HuffPo: The dismissal of an investigation into major media companies suspected of giving clients a sneak peek at crucial data drew great surprise on Wall Street, where traders make their living profiting from blips of information moving at the speed of light.

Federal authorities had been pursuing allegations that various media companies -- including Bloomberg LP, Thomson Reuters and Dow Jones and Co. -- leaked key economic data to select investors, the Wall Street Journal reported Monday. But the investigators dropped the probe, according to the paper, in part because they could not conclusively determine that investors were able to use the advance look at the numbers to extract profits….

Tuesday, January 29, 2013

Occupy WAll Street exposed: Rich, white, educated and working

From the NY Post: It seems those Occupy Wall Streeters were a lot closer to the 1 percent than they would like to admit. 

A new study of the OWS movement in New York found that many of the protesters were highly educated and not nearly as down on their luck as they portrayed.  A third of protesters in the Occupy Wall Street movement in New York lived in households earning more than $100,000 and more than two- thirds were employed professionals, according to the study from CUNY’s Joseph A. Murphy Institute for Worker Education and Labor Studies.

The study also showed the movement was mostly organized by experienced political operatives and nearly all of those involved — 76 percent — were college educated.  Of those, half had graduate degrees and among those with bachelor’s degrees, and 28 percent had attended elite universities.

“Occupy Wall Street was not a spontaneous eruption but rather an action carefully planned by committed activists,” the study concluded.  Additionally, the study found that the protesters were also disproportionately men — 55 percent — and many were white.

“It’s a pretty affluent demographic and highly educated,” said Professor Ruth Milkman, one of the study’s authors. “Many were the children of the elite, if you will….”

Just So you Know.....Hedge Funds Are Selling Stocks As Mom-And-Pop Investors Plunge In To This Market

BI’s Matthew Boesler reports that  stocks have headed higher without respite to start 2013.

Many strategists are warning that a sell-off is in order, especially given a wide range of indicators that suggest investor sentiment is at historical highs.

See the charts for yourself and read more at :

The Hidden Costs Of Working On Wall Street

Yes, according to a BI report, you make a lot of money when you work on Wall Street, but you're going to have to spend a lot of money to stay there.

To go to work everyday you'll need to look the part — the suit, the shoes etc. To live everyday with a banker's schedule, you'll need people to take care of you — maid service, dry cleaners etc.

And then there are the social obligations — trips, schmoozing, memberships...
Wall Street is full of Jones', and as the saying goes, they're hard to keep up with. Here's how much money it takes to try….

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U.S. Wants Criminal Charges for Royal Bank

From the WSJ: U.S. authorities are pushing for a settlement of interest-rate-rigging allegations with Royal Bank of Scotland Group RBS.LN -6.04% PLC that would result in a unit of the big British bank pleading guilty to criminal charges in addition to paying a penalty, according to people briefed on the negotiations.

RBS executives are resisting any guilty plea, fearful that it could lead clients to cut off activity with the bank and that it could increase exposure to costly litigation, some of these people said. The negotiations reflect a newly tough stance by U.S. authorities, who until recently have faced criticism for rarely pursuing criminal action against big banks.

The settlement is likely to include roughly £500 million ($790 million) in penalties levied by U.S. and British authorities, although the exact amount remains in flux, these people said. The deal, under negotiation since last fall, could be completed within the next two weeks….

Find out more at

US Consumer Confidence Tumbles on Financial Fears

U.S. consumer confidence dropped in January to its lowest level in more than a year as Americans were more pessimistic about the economic outlook and their financial prospects, according to a private sector report released on Reuters

The Conference Board, an industry group, said its index of consumer attitudes fell to 58.6 from an upwardly revised 66.7 in December, falling short of economists' expectations for 64. It was the lowest level since November 2011.  The index for December was originally reported as 65.1.

At the start of the year, U.S. politicians came to an agreement that averted the so-called fiscal cliff of spending cuts and tax increases that had been set to come into effect.  But the deal did raise taxes for many Americans and a number of budget decisions still remain.

"The increase in the payroll tax has undoubtedly dampened consumers' spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock," Lynn Franco, director of economic indicators at The Conference Board, said in a statement….

Russia To Try Hedge Fund Lawyer Posthumously

While Russian prosecutors have not tried very hard to win a conviction in the case of the death of Sergei Magnitsky, they are moving forward with a posthumous trial for the hedge fund lawyer.  The trial of Magnitsky, who died in a Russian prison in November 2009 at the age of 37, and of his client, Hermitage Capital Management's William Browder, began today in Moscow. The two are accused of tax fraud.

It is unclear whether the trial, condemned as "Kafkaesque" by Amnesty International, will be open to the public. Magnitsky's mother is boycotting the proceedings and has urged the lawyers appointed to represent her dead son to refuse to serve.

The Magnitsky case has become a major sore spot between Russia and the west. A U.S. law freezing the assets of and denying visas to 60 Russian officials Browder alleges were involved with Magnitsky's death led to a retaliatory law from Russia, barring U.S. citizens from adopting Russian children…..

Read all about the Russian passion for justice at

SAC Capital still working to hang onto investors

From NY Times’ Dealbook: “At last month’s Hurricane Sandy benefit concert, Steven A. Cohen sat near the Madison Square Garden stage, grooving to performances by Bon Jovi and Billy Joel.  Last week, he flew a private jet to the World Economic Forum in Davos, Switzerland, rubbing shoulders with world leaders and Fortune 500 chieftains. And on Monday, he will show up at the Breakers Resort in Palm Beach, Fla., for one of the year’s biggest hedge fund conferences and, if he can squeeze it in, a round of golf.

“For a man who has emerged as the Justice Department’s great white whale in its insider trading investigation — a Wall Street version of Moby-Dick being pursued by Captain Ahab — Mr. Cohen, the billionaire owner of the hedge fund SAC Capital Advisors, does not appear concerned.  But inside the offices of SAC’s Stamford, Conn., headquarters, and at Midtown Manhattan law firms, Mr. Cohen’s employees and lawyers are working hard to contain the fallout from the investigation.

“His execs have offered financial incentives to Mr. Cohen’s staff members to stay with SAC. Marketing officers are trying to persuade investors to keep their money at the fund. And defense lawyers are working furiously to persuade federal securities regulators not to file a civil fraud lawsuit against the firm.

“This has always been a stressful place to work,” said an SAC employee who requested anonymity because he was unauthorized to speak publicly about the fund. “Now it’s just more stressful….”

Monday, January 28, 2013

Goldman Raises $1 Billion Selling Stake in ICBC

Goldman Sachs Group Inc. (GS) raised about $1 billion from selling a stake in Industrial & Commercial Bank of China Ltd. after the world’s largest lender by market value rose almost 50 percent from last year’s low, according to a Bloomberg report.

The equity was sold at HK$5.77 each, 3 percent lower than the Chinese lender’s HK$5.95 (1398) closing price in Hong Kong yesterday, the New York-based bank said, without disclosing the number of shares. Goldman Sachs has no immediate plans to sell more stock, Edward Naylor, a Hong Kong-based spokesman, said….

Judge OKs Salvation Army lawsuit versus BoNY Mellon

From Reuters: a judge refused to throw out a lawsuit accusing Bank of New York Mellon of mismanaging The Salvation Army assets by investing nearly $22 million of the charity's funds in mortgage-backed securities and other risky investments despite reducing its own exposure to such investments

The Salvation Army, one of the largest U.S. charities, claims in its lawsuit that the bank didn't abide by its obligation to invest in conservative assets and failed to take steps to protect the charity as market conditions deteriorated.

The charity, which filed the lawsuit in 2011 in New York State Supreme Court, is seeking damages for breach of fiduciary duty and other claims.  The Salvation Army must only "state a claim at this juncture, not prove it," Justice Barbara Kapnick wrote in her January 25 decision denying the bank's motion to dismiss the breach of fiduciary duty claim.....

‘Wall St.’ flees NY for tax-free Florida!

The city’s hedge-fund executives are flying south — and it’s not for vacation.   An increasing number of financial firms, especially private equity and hedge funds, are fed up with New York’s sky-high city and state tax rates and are relocating to the business-friendly climate in Florida’s Palm Beach County.  And they’re being welcomed with open arms — officials in Palm Beach recently opened an entire office dedicated to luring finance hot shots down south.

Florida is a state of choice,” said Thalius Hecksher, global development chief for Apex Fund Services, who moved many of his operations to Palm Beach. “It’s organically grown. There’s no need to drag people down here. It’s a zero-income-tax jurisdiction. And the lifestyle!” Hecksher added.

Federal tax rates are the same in Florida and New York.  But there’s no state income tax in the Sunshine State. Compare that to New York, where the state and local governments took $14.71 of every $100 earned in 2010, according to state records….

How Nazi Goebbels’ Step-Grandchildren Became Billionaires

From Bloomberg: In the spring of 1945, Harald Quandt, a 23-year-old officer in the German Luftwaffe, was being held as a prisoner of war by Allied forces in the Libyan port city of Benghazi when he received a farewell letter from his mother, Magda Goebbels -- the wife of Nazi propaganda minister Joseph Goebbels.
The hand-written note confirmed the devastating news he had heard weeks earlier: His mother had committed suicide with her husband on May 1, after slipping their six children cyanide capsules in Adolf Hitler’s underground bunker in Berlin.

Quandt was released from captivity in 1947. Seven years later, he and his half-brother Herbert -- Harald was the only remaining child from Magda Goebbels’ first marriage -- would inherit the industrial empire built by their father, Guenther Quandt, which had produced Mauser firearms and anti-aircraft missiles for the Third Reich’s war machine. Among their most valuable assets at the time was a stake in car manufacturer Daimler AG. (DAI) They bought a part of Bayerische Motoren Werke AG (BMW) a few years later.  While the half-brothers passed away decades ago, their legacy has endured. Herbert’s widow, Johanna Quandt, 86, and their children Susanne Klatten and Stefan Quandt, have remained in the public eye as BMW’s dominant shareholders. The billionaire daughters of Harald Quandt -- Katarina Geller-Herr, 61, Gabriele Quandt, 60, Anette-Angelika May-Thies, 58, and 50-year-old Colleen-Bettina Rosenblat-Mo -- have kept a lower profile.

The World's 10 Best Business Schools For Getting Rich

The Financial Times is out with its latest rankings of the world's business schools, with Harvard taking the top spot from Stanford.

As always, these rankings are somewhat idiosyncratic, Bloomberg Businessweek puts Chicago Booth in the top spot, and it barely makes the top 10 in the FT. Our rankings had Stanford at number one.
But of course, salary reigns supreme, and despite recent depressing news about MBA pay, grads from top schools are doing pretty well for themselves.   Here are the top 10 schools ranked by average salary:

  1. Havard Business School
  2. Univ of Penn,: Wharton
  3. Columbia Business School
  4. Indian Institute of Management, Ahmedabad
  5. University of Chicago: Booth

Citadel’s Bumper Year Counts – It’s All Gravy Now

From hedgefundinsight: Although Citadel Investment Group’s flagship funds, Wellington Fund and the Kensington Fund, will rightfully get attention for rising 25.9% and 24.9% respectively, the Chicago-based Groups’ investment success in 2012 was broad. All of the Citadel hedge funds were up by more than 10% in a year when  the HFRI Fund Weighted Composite Index gained 6.2%.

The Tactical Fund, a $1.27 billion high-frequency trading stock fund, reported a net return of 25.7 percent for last year, and the Global Equities Fund made a gain of 17.8 percent. For the last named a positive return is not unusual – for the last eleven years straight the Global Equities team at Citadel have made a profitable contribution to the firm.

According to Citadel founder Ken Griffin’s letter to investors:   “Constant idea generation fuels the success of our diversified investment portfolios. We believe that much of our competitive advantage in security selection is driven by a sophisticated understanding of the factors that move price. Our research efforts focus on understanding what truly matters in a data-rich world.....” Yada yada yada….

Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House

Rollingstone’s Matt Taibbi was shocked when he heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.

I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode….

Traders Make Peace With Computers

From a WSJ report: Years after an electronic-trading onslaught began decimating their ranks, Wall Street traders are making peace with computers.   Pressured by uncertain markets, soft growth and tough new rules, big banks are finding new ways to boost the profitability of their large stock-trading businesses—in many cases by feeding trades from computerized networks to the trading floor.

On a recent day on Barclays stock-trading desk in Manhattan, an electronic platform posted a notice that Barclays was selling a large block of Pfizer Inc. PFE +0.56% shares.

In recent years, a computer typically would have swiftly matched such an order with a buyer, sidestepping trading floors altogether.  But soft trading volume has left many traders unable to move stock as quickly as they might like. That is one reason why Barclays connected its recently launched DirectEx platform to its trading floor. The move paid off when a client who was buying 150,000 shares on the electronic network decided, after chatting with a Barclays salesman, to take an additional 150,000 shares…..

Wait...wait..there's more at

US Facing Fresh Financial Shock

According to the Financial Times: The $1.2 trillion in automatic spending cuts that Barack Obama once promised to avert are looking increasingly likely to occur because of entrenched politics in Washington, threatening a shock to confidence in the US economy.

Economists have long assumed that the so-called sequester - a budgetary mechanism passed in 2011 that takes effect on March 1 and slashes the Pentagon's budget by $600bn over 10 years while cutting discretionary spending for government programmes by another $600bn - would be replaced or reversed by Congress.

Many saw a recent move by Republicans on Capitol Hill to extend the US borrowing authority as a sign of greater co-operation with the White House. But conservative lawmakers have recently made it clear that they were simply gearing up for another fight, and are prepared to take a hard line on the $1.2tn in cuts even amid objections from military hawks……

Find out more at

Look Who Owes $2 Billion for Fraud

Credit Suisse Group Inc faces a potential $2 billion of exposure over fraud that occurred a decade ago at National Century Financial Enterprises, a result of a federal judge's determination on how to apportion responsibility.

Friday's decision by U.S. District Judge James Graham could expose the Swiss bank to hundreds of millions of dollars of added liability over the activities of Lance Poulsen, who co-founded National Century in 1990 and was its chief executive. He is now serving a 30-year prison term and is presumed insolvent.

The decision is also a victory for bondholders including the state of Arizona, AllianceBernstein Holding LP, Lloyds TSB Bank Plc, MetLife Inc, Allianz SE's Pimco unit that accused Credit Suisse of deceiving it about the company and missing its estimated $2.9 billion fraud.

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Saturday, January 26, 2013

Is Apple the New Microsoft?

According Yahoo/Jeff Macke: As all 7 billion people on earth know, Apple tanked this past week after the company's holiday quarter and guidance fell short of expectations. No need to rehash the misery. The only question now is whether Apple is just going through a short-term transition or is slowly becoming a modern day version of its long-time nemesis Microsoft

Count investor/ author/ entrepreneur Carol Roth as one of those in the camp that says Apple's best days are behind it. "There is a point in time when these companies become too big to succeed," Roth says. "Apple now is twice Microsoft's size, approximately, and I think it's running into the same issues; it's very hard to get that huge growth when you are so large."

As derided as Microsoft is, it's easy to forget that it's one of the most successful, groundbreaking companies in history. For all the high-profile failures, Mr Softie has dominated its markets for at least the last 20 years. In its fiscal second-quarter, Microsoft earned $6.38 billion on $21.4 billion in sales — a nearly 30% net margin selling products no one seems to like. Microsoft is sitting on more than $68 billion in cash and short-term investments. In its Q2 Microsoft spent $1.7 billion on buybacks, $1.93 billion on dividends, $311 on acquisitions and nearly a billion on capital assets, but it still added $1.67 billion to its coffers. Despite it all, Microsoft's stock hasn't gone anywhere for a decade…..

Weird’s Deep Thoughts (Saturday Noon Transformative Edition) Why You Truly Never Leave High School


From NY Magazine: Throughout high school, my friend Kenji had never once spoken to the Glassmans. They were a popular, football-­playing, preposterously handsome set of identical twins (every high school must have its Winklevii). Kenji was a closeted, half-Japanese orchestra nerd who kept mainly to himself and graduated first in our class. Yet last fall, as our 25th high-school reunion was winding down, Kenji grabbed Josh Glassman by his triceps—still Popeye spinach cans, and the subject of much Facebook discussion afterward—and asked where the after-party was. He was only half-joking.

Psychologically speaking, Kenji carries a passport to pretty much anywhere now. He’s handsome, charming, a software engineer at an Amazon subsidiary; he radiates the kind of self-possession that earns instant respect. Josh seemed to intuit this. He said there was an after-party a few blocks away, at the home of another former football player. And when Kenji wavered, Josh wouldn’t take no for an answer. “I could see there was no going back,” Kenji explained the next morning, over brunch. “It was sort of like the dog who catches the car and doesn’t know what to do with it.”

….Not everyone feels the sustained, melancholic presence of a high-school shadow self. There are some people who simply put in their four years, graduate, and that’s that. But for most of us adults, the adolescent years occupy a privileged place in our memories, which to some degree is even quantifiable:  This phenomenon even has a name—the “reminiscence bump”—and it’s been found over and over in large population samples.....

Don’t stop now.  Read all about it at

BlackRock Buys $80 Million Stake In Twitter

 Twitter employees are jumping in the air and kicking their heels.  Bloomberg reports that BlackRock, the world's largest asset management company, has taken an $80 million stake in Twitter Inc, a person with knowledge of the deal told Bloomberg gurus

The six-year old social media company will not raise new capital as part of the private deal that values the firm at more than $9 billion. BlackRock will buy shares directly from early Twitter employees seeking to liquidate their stock holdings and options.

Twitter's new valuation represents a slight rise from late 2011, when the company facilitated a similar tender offer with Prince Alwaleed bin Talal of Saudi Arabia that valued the company at a reported $8.4 billion…..

How Two Hedge-Fund Bullies Turned a Schoolyard Fight into a TV Battle Royale

The Players: Bill Ackman, founder and CEO of Pershing Square Capital, a hedge fund with about $8 billion in assets; Carl Icahn, another hedge-fund manager, and old school Wall Street "raider," who has led successful takeover of dozens of major corprorations and is personally worth close to $15 billion.

The Opening Serve: Icahn called in to Bloomberg TV on Thursday to criticize Ackman for his very public short selling of the health supplement company Herbalife. (Ackman has called the company "a pyramid scheme" and has a sizable bet riding on his belief that it will soon be exposed for what it is and go under.) On Bloomberg TV, Icahn said Ackman's position was "disingenuous" and that Ackman was taking a "holier than thou" attitude about the company that is built on the multi-level marketing business model.

The Return Volley: On Thursday night, Ackman issued a press release saying that Icahn is a good investor but can't be trusted. He defended his short but also reminded people of a deal the two businessmen once made that ended with a lawsuit and a lot of hurt feelings. He also called into CNBC Friday afternoon to continue his defense on national television.  That's when the fireworks started. Icahn himself called in to the show and the two did battle for a full half-hour on live TV. The billionaires traded barbs, insults, curses—mostly from Icahn, directed at Ackman and anchor Scott Wapner—all while financial journalists on Twitter and stock traders watching on TV exploded with delight…..

Friday, January 25, 2013

The Greatest Hedge Fund Brawl In Ages Is Happening Right Now — Here's What You Need To Know

According to BI: Everyone has been talking about the hedge fund war over Herbalife — a multi-level marketing firm that sells weight loss and nutrition products. One one side we have hedge fund titan Bill Ackman, the founder of Pershing Square Capital Management, who is shorting the stock.

After Ackman publicly declared his short, hedge fund heavyweight Daniel Loeb, the founder of Third Point LLC, took out a 8.24% stake in the company on the long side.  Some other fund managers have also gone long Herbalife after disagreeing with Ackman's short case. Ackman's rival Carl Icahn hasn't publicly said if he's long Herbalife or not, but he slammed him on Bloomberg TV for his "holier than thou" short calling him "disingenuous."

It's definitely been a real-life clash of the titans.  The most important thing you have to realize is that Herbalife itself is just the "McGuffin" in this story. It's a plot device that moves the story along, but in itself means very little. A classic McGuffin was the unidentified glowing item in the briefcase in Pulp Fiction, which Marcellus Wallace was so eager to have returned to him. What was it? Nobody knew or cared. But a fabulous story hinged on it. So, if you're just coming into this story, we've put together a comprehensive guide of everything you need to know about the Herbalife hedge fund war……:

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Weirdest Headline of the Week: Lego Racism? Muslims complain about Jabba the Hut

Lego racism? Turks in Austria say Lego's Jabba's Palace set looks like a mosque. And Lego's Star Wars villian Jabba the Hut perpetuates racism and prejudice toward Muslims among children who play with Legos, the Christian Science Monitor reports.

Some Turks in Austria have lodged a formal complaint over Lego's Jabba's Palace set, saying Lego is encouraging racial prejudice and perpetuating negative images of Muslims.

The problem, apparently, is that the Jabba the Hut Lego palace looks like a mosque. And not just any mosque, but Istanbul’s great Hagia Sophia, and another mosque in Beirut, Jami al-Kabir.


How Apple ate Wall Street

Mutual-fund investors aren’t supposed to have to pay attention to the fate of any particular stock. But according to Marketwatch like so many things with technology giant Apple Inc., the regular rules don’t seem to apply.

While Apple’s AAPL -2.57%  stock has been hit hard in recent months — losing more than third of its value since September, including a 12% drop since missing earnings estimates on Wednesday — the Cupertino, Calif.-based company is still the most valuable name on the stock market. That distinction means it looms unusually large in millions of Americans’ investment portfolios, even if they’ve never glanced at one of its quarterly earnings reports. “We’ve never seen another company have as big an impact” on overall market returns, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Just how popular has Apple become? It was among the top 10 holdings in more than 1,000 mutual funds last year, according to fund researcher Morningstar Inc. — up from just 11 in 2002, shortly after Apple introduced the device that started the gadget craze, the iPod. Overall, about one in four stock funds owns Apple…..

Read all about it at

Weird’s Deep Thoughts: (Friday Morning Transformative Insight Edition) Dow Nears Record, But Is It Just Another Bubble?

Both the S&P 500 and the Dow are nearing all-time highs. While getting to this point seemed unimaginable not long ago, the Dow industrials are nearing an all-time high after a tumultuous recent past and a decidedly uncertain future.

A Dow Jones Industrial Average trading over 14,000 seems like a quaint relic that hearkens back to the days before subprime, before the near-collapse of Wall Street, before the economy depended on Federal Reserve printing presses to stay afloat.

Looking ahead, the market confronts a set of circumstances with cross purposes: It needs the Fed to keep pushing stimulus but eventually must break free from that support if the gains are going to be sustained…..

Find the answers at

Zuck to host campaign fund-raiser for NJ Gov. Chris Christie

Facebook founder Mark Zuckerberg is opening the double-wide doors at his $7 million Palo Alto, Calif., home for New Jersey Gov. Chris Christie.  The Web wunderkind will host a fund-raiser reception on Feb. 13 for the governor’s re-election campaign at $3,800 a head.

“Mark and [wife] Priscilla offered to be helpful, and Governor Christie is grateful for their support,” Christie’s spokesman, Mike DuHaime, told The Post.

According to a Facebook spokeswoman, Zuckerberg, whose political affiliation is undeclared, supports the Republican governor because of their shared interest and efforts toward education reform….

Find out more at

Whoa! Triple Dip Recession for Britain?

Shocker: Britain's economy shrank more than expected at the end of 2012 with a North Sea oil production slump, lower factory output and a hangover from London's Olympics pushing it perilously close to a "triple-dip" recession, Reuters reports..  The country's gross domestic product fell 0.3 percent in the fourth quarter, the Office for National Statistics said on Friday, sharper than a 0.1 percent decline forecast by analysts.

The news is a blow for Britain's Conservative-led government, which a day earlier defended its austerity program against criticism from the International Monetary Fund. It needs solid growth to meet its budget targets, keep a triple-A debt rating and bolster its chances of winning a 2015 election.

Sterling fell to its lowest in 13-1/2 months against the euro and hit a five-month low against the dollar in response to the data. The euro was also buoyed by a stronger-than-expected German Ifo sentiment survey.

Here's The 'Schmuck Insurance' Contract That Started A Decade-Long Feud Between Carl Icahn And Bill Ackman

According to BI it's all out being put out there now. The feud between hedge fund managers Bill Ackman and Carl Icahn reached a fevered pitch yesterday, when Carl Icahn told Bloomberg TV's Trish Regan that Ackman was "disingenuous" in his short against multi-level marketing firm, Herbalife.

Last night, Ackman responded simply by detailing the root of he and Icahn's animosity, a 2003 deal over Hallwood Realty.  At the time, Ackman's hedge fund, Gotham Partners, was going bust. He needed to do a deal so he called up Carl Icahn and offered to sell him shares of Hallwood for $80 a share. It was trading at $60, but Ackman thought it was worth $140.

The deal was, if Icahn sold the shares within 3 years and made a profit of 10% or more, he and Ackman would split the proceeds. To ensure that the deal went off without a hitch, Ackman and Icahn signed a 10 page agreement they called "schmuck insurance."

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Read This and Weep! Fired Trader Loses $53 Million Bonus

Deutsche Bank’s Christian Bittar, one of the firm’s best-paid traders, lost about 40 million euros ($53 million) in bonuses after he was fired for trying to rig interest rates, three people with knowledge of the move said.

The lender dismissed Bittar in December 2011, claiming he colluded with a Barclays Plc (BARC) trader to manipulate rates and boost the value of his trades in 2006 and 2007, said the people, who requested anonymity because they weren’t authorized to speak publicly. His attempts to rig the euro interbank offered rate and similar efforts by derivatives trader Guillaume Adolph over yen Libor are the focus of the bank’s probe, the people told Bloomberg…..

Schwarzman Dude, you’re not getting Dell.

That’s the conclusion Blackstone Group reached after weighing a rival takeover bid for the struggling PC maker, The Post has learned.

Blackstone, the buyout firm led by Steve Schwarzman, talked with Citi in recent days about helping finance an offer before deciding it would be too difficult to pull off, sources said.  Ultimately, the executives who gathered at Blackstone’s offices, including Citi’s vice chairman of global banking, Chad Leat, decided that it would be tough to come up with some $5 billion in equity to top an offer from rival buyout firm Silver Lake Partners.

Silver Lake is expected to kick in $1 billion in equity, while CEO Michael Dell is putting in stock valued at $3.6 billion. Microsoft is also said to be mulling throwing in $1 billion to $3 billion.Schwarzman

Thursday, January 24, 2013

Yellow Alert: U.S. Strategic Supply of Million-Dollar Homes Is Dwindling

From Gawker: Tthe Great Recession of the past several years took many things from America: our jobs. Our financial resources. Our pride. But as the economy returns to its former glory, we now face a new peril: our national supply of mansions is getting dangerously low.

The WSJ reports that sales of high end luxury homes roared back this year (and let us take this opportunity to congratulate you all on your million-dollar home sales in 2012—finally!). Good news? Sure—for the Soviets. How many terrorists, communists, and socialists enemies of this nation are rubbing their hands together in glee, waiting for us to deplete our precious Mansion Reserves before they strike?:

From the WSJ: At the current sales pace, it would take nearly 12 months to sell the supply of million-dollar properties available for sale in October, down sharply from 21 months one year ago, according to the National Association of Realtors. The supply shortage is becoming particularly acute in the West, where the supply of million-dollar homes stood at just six months in October….

The Curious Case of the Banks’ Missing $114 Billion

More than $114 billion exited the biggest U.S. banks this month, and nobody’s quite sure why.

The Fed releases data on the assets and liabilities of commercial banks every Friday. The most current figures, covering the first full week of 2013, show the largest one-week withdrawals since the Sept. 11, 2001, attacks. Even when seasonally adjusted, the level drops to $52.8 billion—still the third-highest amount on record, and one for which bank experts and analysts were reluctant to give a definitive explanation.

The most obvious culprit is the expiration of the Transaction Account Guarantee program, the extraordinary federal effort to shore up the country’s non-gigantic banks during the 2008 financial crisis. Big banks were considered “too big to fail,” while smaller ones were vulnerable to runs. The TAG program backstopped their deposit bases by temporarily offering unlimited insurance on money kept in non-interest-bearing accounts. That guarantee ended on Dec. 31, so a decrease in deposits would be expected first thing in January.

But hold on: The Fed data show $114 billion leaving the 25 biggest banks—about 2 percent of their deposit base. Only $26.9 billion left all the others, equivalent to 0.9 percent of their deposit base

The 10 Hedge Funds With The Biggest Stakes In Apple

According to BI’s Julia La Roche tech giant Apple posted disappointed earnings results yesterday and missed analysts' expectations pretty much across the board.  The stock, which has been a hedge fund favorite for quite some time, was last down more than 11.6% today.  Here's a rundown of the ten hedge funds with the largest stake in Apple, according to 13F data for the third quarter ended 9/30/2012 compiled by Bloomberg.

Discovery Capital (Robert Citrone): The 'Tiger Cub' hedge fund held 2,017,052 Apple shares, or a 0.21% stake at the end of Q3.  The fund added 63,100 shares in that quarter, the data shows.

D.E. Shaw (David E. Shaw): At the end of Q3, the fund held 1,529,0777 shares or a 0.16% stake.  D.E. Shaw sold 285,887 shares during the third quarter.

Tiger Global Management (Chase Coleman): Tiger Global held 1,300,000 shares of a 0.14% stake in Apple,  The hedge fund sold 100,000 shares of Apple in the third quarter.
Greenlight Capital (David Einhorn): Greenlight owned 1,090,890 shares of Apple or a 0.12% stake.  Greenlight sold 363,630 shares in Q3….

Undercover Mole Has Caught Another Former SAC Insider Trader

Dipak Patel, a former SAC Capital portfolio manager, has been fingered by a mole, the WSJ.told BI.
The undercover informant has told federal investigators that she passed confidential information to the trader for years.  Patel, who was a technology stock manager for Steve Cohen's hedge fund, has yet to be charged with any wrongdoing. He left SAC Capital in 2010.

Investigators have been concentrating their efforts on SAC Capital in a big way for years. The heat has been especially intense since last November, when Feds wrote that SAC CEO Steve Cohen interacted with alleged insider trader, Mathew Martoma in a complaint. Six former SAC employees have been convicted of or pleaded guilty to insider trading since 2009…..

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Apple's Stock Drop May Hurt Funds

Last year the billionaire hedge fund manager David Einhorn predicted that Apple’s market capitalization could hit $1 trillion. He long ago made Apple one of his hedge fund’s biggest holdings and in a letter dated just two days ago Einhorn told his investors he had purchased more Apple shares as the price declined late last year. “We used the lower prices as an opportunity to repurchase the shares we sold in the third quarter,” Einhorn wrote.

Einhorn’s hedge fund was down 4.9% net of fees in the fourth quarter of 2012, thanks partly to the performance of Apple’s shares. “Our Apple was bruised,” he noted to his investors. The question now is, will Apple sink Einhorn and other hedge funds in 2013?

Despite underperforming the U.S. stock market for four straight years, the hedge fund industry has found success betting on Apple, enjoying the stock’s incredible performance as it rose from $200 to $500 and eventually reaching $700 per share. It has been, by far, the most popular stock among hedge fund managers, who are paid rich fees by their investors….

Buffett creams hedge funds!

According to Fortune It's halfway time in the 10-year stock market wager sometimes called The Million-Dollar Bet—that's Warren Buffett backing the performance of an S&P index fund vs. a New York money manager backing five funds of hedge funds—and there's double-barreled news.

Item One: For the first time since the bet started five years ago, Buffett has moved ahead—by an okay margin to boot. Item Two: For the first time ever as well, both sides have crawled out of the ditch (though the funds of funds barely made it) and are showing positive results.

About that history of bad results, of course, you need to keep in mind that this bet started in the gut-wrenching year of 2008, which left both contenders deep in the red. Buffett, though, was definitely a deeper shade of red:  Vanguard's Admiral shares—the S&P index fund he'd backed—lost 37% in 2008 vs. a 24% drop, on the average, for Protégé's five funds of funds.

So now the tortoise, after crawling four more years, indeed leads. At the five-year mark, the Vanguard index fund backed by Buffett is up by 8.69%. The five funds of funds picked by Protégé Partners to carry its flag in the race are up, on the average, only—"gulp," says Protégé partner Ted Seides—0.13%.

P.S. By the terms of the bet, the identity of those five funds has never been made public. It has always been assumed, however, that one of them is a fund of funds run by Protégé itself.