Thursday, August 09, 2007

Another Hedge Fund Freezes

As you probably know by now, another bank, in this case, BNP Paribas SA, France's biggest bank, has frozen withdrawals from three of its funds. You can read about it here on Bloomberg.

The Dow futures are currently down ~125 pts. But the futures and how we close are often divergent. As I noted yesterday, it appeared to me that the market was still nervous, witness the dip between 3 and 3:30.

I think today that we will see the financials get hit again. The Bear Stearns news inserted itself into investors psyche and then somehow was miraculously assuaged. I think that as we hear more about hedge funds having assets that are difficult if not impossible to value we will get a full seizing of the credit markets. If there is going to be a systemic risk event in my lifetime, I think that this might be it. I'M NOT PREDICTING ANYTHING and I surely do not know a thing. But it would seem to this amateur observer that this is a catalyst event. There are going to be many spooked investors with their money locked away in these hedge funds. This situation needs to become unwound and the string has only now been pulled.

Bloomberg is also reporting this:

The European Central Bank said it will launch an unlimited fine-tuning operation today to add liquidity at 4 percent after demand for cash in the European money market drove interest rates higher.
This strikes me as crisis intervention.

I also understand that there are two Cayman island hedge funds that are going bankrupt with more than $4B USD in assets.

Now I noted yesterday that Gary K said that the technicals confirm the uptrend is in place; when he gets a confirmation, he probes (as I noted) with small positions. A perfect discipline to ensure that in the event that there is a false signal, losses are minimized.

I also want to caution you to take everything that you hear from these hedge funds, banks--any with "skin in the game"--with a grain of salt. These people are responsible for managing expectations positively, not for telling you their worst fears. I'm not saying that is lying; but it could very well be whitewashing a situation that has not been fully understood even by them.

5 comments:

Anonymous said...

That ECB news is a fascinating tidbit Leisa. They are worried about SOMETHING and came out in the open to signal help is on the way. Are the CBs worried about deflationary crisis here?

M

Anonymous said...

Re a previous post post, I guess this morning the market can't ignore "all that other stuff". Can you imagine trying to DAYTRADE this?

M

Anonymous said...

Apparently, I can't avoid controversy.

Not Very Anon

russell1200 said...

http://www.wamu.org/programs/dr/

Hope the link works. The Diane Rehm show had a whole show on the sub-prime market (10:00am on 8/9/07). It has gone very mainstream and very very serious.

You can expect a major political impact on the market beyond the (normal) really bad economic reactions.

When the problems shifted to the Jumbo loans all bets were off.

A bunch of over leveraged hedge funds going belly up would be the best result we would expect. Money market funds are finding that some of the Corporate paper the invest in has become adulterated with sub-prime muck, and remember that credit card loans and auto loans are also securitized. It is not clear at the moment that these markets will remain liquid either.

Anonymous said...

see if you can find anything in this

http://www.ecb.int/pub/pdf/other/euromoneymarketstudy200702en.pdf