Futures Down Triple Digits on Hedge Fund Collapse

Yet another shoe(s) has dropped, as several large hedge funds imploded, leading to global bourses being pressured overnight.

According to the Times of London, several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility.

Note that the British Financial Press has had a much better handle on the credit/derivative situation than have much of the American press. I’m not sure if its the distance, or perhaps a greater degree of objectivity. My own pet theory is that overseas editors are less impacted by the various scolds who work the refs, i.e., complain the the media is too pessimistic . . .   

Global markets dropped on the news. The FTSE 100 was done almost 2%, while the XETRA-DAX and the CAC40 each lost more than 2.25%. Asia markets were down even more, as the HANG SENG dropped -4.79%, and Japan’s NIKKEI 225 fell 3.33%

Dow Futures were off 150 points as of this writing, with Nasdaq off 23 and SPX futures lower by 15.

~~~

More later . . .

>

Sources:
Hedge funds on the brink as US Federal Reserve cash fails to ease crisis   
The Times, March 13, 2008   
Suzy Jagger
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3542723.ece

Despite the Federal Reserve’s efforts Wall Street fears a big US bank is in trouble
Siobhan Kennedy and Suzy Jagger   
The Times, March 13, 2008   
http://business.timesonline.co.uk/tol/business/economics/article3542775.ece

Carlyle Capital Nears Collapse
PETER LATTMAN
WSJ, March 13, 2008; Page C2 
http://online.wsj.com/article/SB120537974320632835.html

In Dealing With Bear Stearns, Wall Street Plays Guardedly
KATE KELLY, SERENA NG and JENNY STRASBURG
WSJ, March 13, 2008; Page C1
http://online.wsj.com/article/SB120537606195632655.html

Dow Retreats As Doubts Rise Over Fed’s Move
LIZ RAPPAPORT and PETER A. MCKAY
WSJ, March 13, 2008; Page C1
http://online.wsj.com/article/SB120537790851532753.html

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What's been said:

Discussions found on the web:
  1. SM commented on Mar 13

    No problem – can’t Ben bail them out also?
    Free money for everyone who acts badly

  2. JustinTheSkeptic commented on Mar 13

    That must mean, here comes Uncle Ben to the rescue of the u.s. markets again. There is no way we can let our stock markets go down past those January lows! Why would we want to let natural market forces determine price? lol

  3. trackerman commented on Mar 13

    BR:
    So I guess that we can expect the FED to put in an Emergency Rate cut to once again try to prop up the Stock Market at the expense of inflation. Oil to $130, Gold to $1200. What will stop this FED Wreck?

    Hey, but core inflation is only 2%. Right! That’s why the post office rates and DOT fees are jumping exponentionally for 2008 along with commodities. Maybe they should be limited to CORE rate increases, like Soc Sec. Like that would ever happen???

  4. Dee Leverage commented on Mar 13

    This is Dee Leverage..the Prophet of Margin Calls…Ben cannot help you anymore. He is getting a call from me sometime today. He better answer his phone. Hope your flatscreens are paid for folks. Your Uncle Ben (am I’m not talking rice) is getting a margin call today. Put up some more capital America.

    On a happier note, my trip to China is all planned for the Olympics. Oh and the Carlyle guys were nice about their problem…I’m getting a gold watch from them.

  5. Marcus Aurelius commented on Mar 13

    How do we know who really caused this? They’ll be the only ones leaving the country. They’ll be the only ones with the means to leave the country.

    Time to freeze some accounts/assets.

    Grover Norquist openly stated his plan to destroy the US government (that’s us, folks), and we elected his boys anyway.

    Did we think these guys were kidding?

    The uglyness has just begun.

  6. Len commented on Mar 13

    Could it be the journalists over there understand what’s going on?

  7. PureGuesswork commented on Mar 13

    An interesting take on this squeeze on Carlyle and other hedge funds being–somewhat paradoxically–caused by the Fed’s action this week. (See Alea & ftalphaville for reference to BBC’s Robert Peston.) The scenario being as follows: (1)the Fed’s shows willingness to exchange treasuries (i.e cash) for illiquid securities (MBS, etc.). This offer is made to prime dealers. (2.) These same dealers are holding lots of these illiquid securities as collateral for loans to hedge funds. (3.) Eureka! Prime dealers figure out they can call loans to hedgies, seize collateral and turn it into cash thanks to the Fed.

  8. cinefoz commented on Mar 13

    You miss the point completely.

    The US media is pessimistic, shallow, generally uninformed but pretending not to be, and frequently uses people for quotes who have hidden agendas motivated by profit, or knowingly put ignorant but well presented people on just to fill air time or fill print space with known names.

    Even here in TBP, there are content and tone problems. Content often includes a headline, a graph, and a scare with no depth other than a general sense of ‘I told you so’ and ‘Booo … ‘. Implications with no information abound. Since this is a blog that is supposed to be a credible source and is heavily read, the frequent substitution of appearance for information requires challenge.

    If I want information, I usually go to FT.com. Reliable information on a regular basis doesn’t exist here or most anywhere in the US media. In the US media and here, you see a repetitive disgorgement of ‘common beliefs’ and ‘semi informed opinion’ substituting as gospel and unimpeachable fact or incredible insight.

    I believe there is integrity here and no attempts are being made to jawbone the market downwards via a parade of unending scare stories. I assume negativism without explanation or depth is just your way of communicating. Or maybe people are expected to pay for it.

    Contrast this with Jim Rogers on CNBC. Immediately after the Fed plan was announced and equity price increased, Rogers chided the financial community into not allowing a cleansing recession to occur. Only later did he mention that he is short financials. This means a strong market at this time would cause him big financial problems. By implication, he would like to injure the majority financially just to make a few bucks in a falling market. Shorting is ok. Using personal influence to destroy the market for profit is immoral.

    If you don’t wanted to be chided for excessive pessimism, then add depth and explanation to stories, rather than assuming splashy graphs and a headline are a substitute for actual information.

  9. Al Greenspan commented on Mar 13

    Well, it still gets down to the fact that the national government is addicted to deficit spending…there was a commercial recently about a fellow who was deeply in debt, trying to keep up appearances with the Joneses…he had a nice house, nice car, etc. but all of it was bought on credit…in one scene he says as he is cutting his beautiful lawn on his riding mower,”somebody please help me!”…I know you’ve seen it.

    We will have the biggest budget deficit in history this year…was in the news this last week.

    The answer, at least the start, is a balanced budget amendment to the constitution. Without it, the dollar won’t ever regain respect as the rest of the world sees us for the “big hat, now no cattle” that chronic overspending has brought us to….

  10. Douglas Watts commented on Mar 13

    Could it be the journalists over there understand what’s going on?

    Not exactly. U.S. journalists have an inherent fear of using phrasing which could be construed as challenging orthodoxy. If you challenge your editor in a newsroom, you get in trouble with the editor. It’s much better to keep head down, profile low. The same attitude carries into the way news stories are selected, framed and written. For this reason, the U.S. news media is a lagging indicator of what is actually happening in the U.S. The financial press is even worse because of its incestuous relationship with a bull economic market (ie. bear markets cause ad sales and reader interest to decline, ergo less $$$ for news outlet and parent corp.).

  11. quick commented on Mar 13

    Ha, I’ll buy on this news! It’s been in the news for months that Carlyle has been failing. That’s already priced into the market. Scaring this up now is pure manipulation.

  12. Ross commented on Mar 13

    Cinefoz,
    “A strong market would cause Jimmy Rogers big financial problems?”

    That’s the funniest damn thing I’ve read all week. I believe Jimmy will be just fine, thank you.

    Go get a Big Chief tablet and some crayons.

    Have a nice day and play nice.

  13. pft commented on Mar 13

    I have been doing pretty well with the dollar collapse and commodity bubble. But I know that in the end we are all going to suffer, big time. So I can’t take too much comfort. You can run but you can not hide. This is a manufactured crisis to destroy the dollar and get people to accept the new currency (see BP’s earlier post on Volcker).

  14. Marcus Aurelius commented on Mar 13

    If you don’t wanted to be chided for excessive pessimism, then add depth and explanation to stories, rather than assuming splashy graphs and a headline are a substitute for actual information.

    Posted by: cinefoz | Mar 13, 2008 8:50:15 AM

    _____

    And if the “actual information” does not conform to your predetermined opinion, rail against it. Challenge facts with rhetoric. Swiftboat reality. Cigarettes do not cause cancer. Iraq has WMDs. The price of RE never goes down. I want a strong dollar. Deficits don’t matter.

    Why do you hate reality?

  15. cinefoz commented on Mar 13

    At this moment, I think a commentator named Ali Velshi on CNN is an excellent example of a shallow purveyor of ‘what everybody knows’ passed of as cutting edge information. I don’t watch Fox so there are probably others who share his position.

    Regarding Ali Velshi, When the stock market bubble was obvious and a terrible accident waiting to happen, I clearly remember him postulating in an uncommitted way (probably for legal reasons) “It just keeps going up. Maybe you should think about getting in before it’s too late”. Now you have obvious stories about the bad markets that just say what everybody else has already said about what happened yesterday and before. No insight. No analysis other than repeating old news.

  16. lurker commented on Mar 13

    Cinefoz–hate to break it to you, but everyone talks their book, even you. Then the market does what it has to do, no matter what Rogers says on TV or you or Barry post here. The problem with the media is that they don’t understand what they are reporting. If they did, the pay is a few multiples better on the trading side so bye bye journalism. Case in point is Dylan Ratatatat. Talks fast and uses all the trader jargon beautifully but would you let him manage your 401k??? Didn’t think so. He is showbiz not street smarts, just like silly senor Cramerica…

  17. spiny mcdob commented on Mar 13

    this blog is meant to get people thinking not the end all of detailed research. this is a free site. i think barry does an excellent job of presenting topics we need to discuss but he is basicly doing it for ‘free’………………….journalist and media outlets make big bucks putting out fluf.

  18. zell commented on Mar 13

    Cinefoz : You’re not the who should be speaking of depth after the vacuous nonsense you afflict readers with. As to Jimmy Rogers, he is merely reiterating points he has made for years. He doesn’t have to talk his book.
    I usually skip your posts and wil resume doing so.

  19. cinefoz commented on Mar 13

    Let’s talk about oil prices.

    The price today is a function of scarcity, demand, the falling dollar, and speculator antics.

    Commodity futures and leverage are complicated. I don’t understand them, but I suspect that most of the price run up this year and late in 2007 had more to do with speculative demand than the falling dollar or scarcity of supple relative to end user demand. Far more.

    Yet ‘the falling dollar’ is the common scapegoat in the headlines or paragraph 1. An understanding of commodity markets and speculative demand would be helpful in understanding the price of oil. Yet nobody wants to offer explanations about this. The stupid explanation works OK so why work any harder?

  20. Michael M commented on Mar 13

    I believe we will find a bottom of some sort when the market looses all remaining faith in the Fed.

    One way for this to happen is of one of it’s many actions ends up being perceived by the markets as actually being harmful already in the short term.

    If the BBC business editor’s suspicion that “that the banks’ seizure of Carlyle’s $20bn-odd in assets has actually been encouraged by the Fed’s morgages-for-Treasuries offer” becomes common perception then the time may be near.

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/

  21. wunsacon commented on Mar 13

    >> Yet ‘the falling dollar’ is the common scapegoat in the headlines or paragraph 1. An understanding of commodity markets and speculative demand would be helpful in understanding the price of oil. Yet nobody wants to offer explanations about this. The stupid explanation works OK so why work any harder?

    First of all, I don’t understand what’s “stupid” about the explanation that:
    – Foreigners can’t use their dollars for much else than buying oil, wheat, military equipment, and aircraft.
    – Since they have so *many* dollars, you and I have to bid more and more dollars for that same oil and wheat.

    Second of all, MS has tried on several occasions to describe how the oil game is rigged and how we should be looking not at contracts but storage. (Could be correct. I just don’t know enough to get the balls to short oil.) So, don’t say “nobody wants to offer explanations about this”.

  22. MPH commented on Mar 13

    Barry – on your comment about British press. I think it’s less that editors don’t have to deal with scolds and more of a cultural thing. I’m an American, but I’ve lived in London for 6 years. The cultural default for Brits is pessimism. That’s why they love and are completely annoyed by Americans. All that bloody optimism. So, basically, just take your pet theory one step further.

  23. Douglas Watts commented on Mar 13

    The idea that $4 a gallon gasoline and truck fuel and food and commodity prices increasing 30 percent since last summer will not have an effect on a consumer-based U.S. economy is a tad daft.

    But this is what we are told.

  24. cinefoz commented on Mar 13

    wunsacon,

    Re oil: I would like informed explanations by educated and experienced individuals. Not ‘something that sounds reasonable’ by nice people such as you who are just guessing. Or paranoid guesses by the tin foil hat set.

  25. cathompson commented on Mar 13

    Speaking of the dollar. The current occupant was on NBR last night. He wants a strong dollar. When he gets it it will likely be greeted by massive selling of treasuries by foreign central banks.

  26. Howard Veit commented on Mar 13

    We are not misinformed but malinformed and this is deliberate. When we have “journalists” whose purpose in life is “to make a difference” instead of informing the rest of us so WE can make a difference you have agenda journalism. The Journal “news pages” need to be read like an actor reads Daily Variety, which means that you have to ask yourself “who caused this to be in the paper?” “who benefits from this article?” and “is this true at all and what does it mean for ME?” Nobody in any business has no agenda, and all so-called reporters have them.

    The only real investment paper is Investors Business Daily; you just get the facts and all you need to do is check circulation to find out how few of us want “just the facts.”

  27. Larry commented on Mar 13

    Speaking of British media, I just think they have a different news culture. Exhibit no. 1: their tabloids.

  28. shoeless commented on Mar 13

    Cinefoz,

    Everyone talks their own book, no?

    “Liquidity and credit are returning to the market. The end of the quarter is approaching, bringing along the probable and usual end of quarter window dressing.
    My bet is that the market is going to start to rally today and not look back appreciably until April.
    Time to jump in and make some money. Cha Ching! Last one in is a pissing mad gloomster.”
    Posted by: cinefoz | Mar 11, 2008 2:01:16 PM

    “I would like informed explanations by educated and experienced individuals. Not ‘something that sounds reasonable’ by nice people such as you who are just guessing. Or paranoid guesses by the tin foil hat set.”

    Posted by: cinefoz | Mar 13, 2008 9:48:50 AM

    Practice what thy preach.

  29. Marcus Aurelius commented on Mar 13

    Understanding the price of oil?

    Oil is +-$105 a barrel.

    They also had some good looking flounder fillets at the grocery store for $8.99/lb.

    What’s to understand.

    Prices are what the market will bear.

    Prices are high. Rumor has it that global demand is up and the value of the dollar is down. The general consensus is that Americans can expect continued increases in the price of petroleum based products. Our preferred means of transportation – and in fact, our petroleum-centric culture – isn’t the most economical, and we don’t control the commodity or the market, so we’re really feeling it.

    Now, about housing…

  30. mikkel commented on Mar 13

    Cinefoz about oil:

    Here you can see that recently when oil was $87 a barrel, it was 62 euro. The 06 peak was $78 and 60 euro.

    Now it is $106 and 66 euro.

    So 62-66 (6%) vs. 87-106 (22%)

    It IS very much a currency issue.

  31. rumpole commented on Mar 13

    shoeless, thanks for giving us a smile today.

    Great response !

  32. jd commented on Mar 13

    Exposures to Carlyle’s 32x leveraged fund

    Citi $4.7bln, Leh 3bln, BOA 2bln, UBS 1.8, BS 1.7, ING 1.5, JPM
    1.4, Calyon 1.3, ML .76, BNP .6, CS .5

    floating around trading desks

  33. observer commented on Mar 13

    “Liquidity and credit are returning to the market. The end of the quarter is approaching, bringing along the probable and usual end of quarter window dressing.
    My bet is that the market is going to start to rally today and not look back appreciably until April.
    Time to jump in and make some money. Cha Ching! Last one in is a pissing mad gloomster.”
    Posted by: cinefoz | Mar 11, 2008 2:01:16 PM

    It’s obvious from the pedantic tone today that cinefoz blames those who point out potential causes of economic and market worry for his losses he is incurring. Why, if the market doesn’t correspond to his polyanna scenario, it’s our fault for being unreasonably negative. So it’s our fault cinefoz is getting shellacked in the market, not his!

  34. cathompson commented on Mar 13

    IBD the uber neo capitalist rag? Twin brother of the Daily Racing Form. Momentum investing for the illiterate.

  35. cinefoz commented on Mar 13

    shoeless,

    Thanks for being a fan.

    As one kind reader said “my ego must be big enough to have it’s own climate and ecosystem.” Truer words were never spoken. It is a great and wonderful experience to write something far over the top, yet be so spot on right.

    I do think the bottom is here, more or less, and not going to fall into the pits of hell for all eternity, as the gloomsters would have you believe. By bottom, I mean general level, not absolute lowest point.

    And no, the market will not bounce back to bubble high levels and skyrocket up from there.

    The market will end the year up from current levels in spite of the poplar view of short sellers. Good news based on substance and/or the actions of the masses forms a base that the market will rise from. Since I went long at a bottom, I will make money this year. I don’t think I will lose under any circumstances unless I panic sell.

    The only way the market can fall appreciable for any length of time is if the quantity or velocity of money falls significantly. The Fed, it seems, will not allow that to happen. Nor will it allow bank balance sheets to be based on phony numbers. They will supply liquidity in the form of short term credit as needed until not needed.

    All I have to do is wait for a point higher than today and sell. Later I will buy back when another bout of absolute despair envelopes the market, thanks to temporary events colorfully and gloomily explained by short sellers who hope to profit from making things look worse than they are.

    The media, of course, is mostly clueless and will lead by following whoever is making the loudest noise that is likely to sell advertising.

  36. cinefoz commented on Mar 13

    BTW, thank Cramer for making the end of quarter window dressing observation public. Based on my experience, it is mostly spot on. It’s in his books.

  37. E commented on Mar 13

    observer,

    That post from cinefoz was the tipping point for me – I wasn’t joking in my followup post that the cinefoz contrary indicator was flashing red. I went massively short before the close on 3/11 and am up huge right now.

    I advise everyone here to carefully follow cinefoz posts. When he’s brash and gloating, go short. When he’s “concerned”, get long.

    And I’m not kidding.

  38. cinefoz commented on Mar 13

    E,

    I’m always brash and gloating. And I’m only a little below break even YTD today. Last week I was in the green. And I’m right.

    You’re full of crap.

  39. mikkel commented on Mar 13

    Here cinefoz if you want the most unbiased site I have seen, and one that talks about what to expect over intraday, multiple day and longer term time scales, go there every day. You will see that stuff is acting exactly like it can be predicted to for the most part, and it’ll help you set your entry and exit points regardless of which side you are on.

  40. cathompson commented on Mar 13

    mr cfz – You will be wrong until you are right. You should call Warren Buffet and give him a tutorial.

  41. DonKei commented on Mar 13

    Mikkel…thanks for the post re: pricing oil in dollars and euros. It’s what anyone denying that “it’s the dollar, stupid” (that means cinefoz, inter alia) needs to see.

    And honestly, every last monetarist economist, from Milton Friedman to even Ben Bernanke should have/would have seen it coming a mile away.

    The short time in the early part of the decade when the dollar stayed strong through huge deficits was an aberration, mostly caused by the fraud of financial alchemy.

    You can’t run huge trade deficits and not expect to see the currency decline. It is a matter of mathematics as much as anything else. Dollars are cheap. Oil is dear, and getting dearer. Expect more of the same.

  42. zot23 commented on Mar 13

    1: “Pardon me, did you drop your chocolate into my peanut butter?”

    2: “No sir, I accidentally dumped my overblown, depreciating NINJA mixed CDOs into your dollar bloated, overleveraged world economy.”

    1: “Oh, shit…”

  43. Pat G. commented on Mar 13

    As I write this all indices are trading in the black. There is still too much money sitting on the sidelines waiting to go to work. Investors seemingly believe that their only options are to invest it in either stocks or bonds. How long will you allow yourself to be duped or has the market become nothing more than a function of day trading?

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