InvestorLetterPalooza Day I

(Nakedshorts.typepad.com) Naked shorts has come up with an excellent collection of hedge fund letters that are just being mailed out to investors. The include those of the Maverick Fund (Lee Ainslee) and the Baupost Group (Seth Klarman). Well worth reading.

Read the letters here

Robert Rubin's Free Ride

(TheBigMoney.com) How does Clinton's Treasury secretary escape blame for the market meltdown?

Read the story here

Too Late to Order Halloween Masks?

Wish I had seen this earlier!


Super spooky Ben Bernanke and Henry Paulson limited edition horned masks.

Go here to check it out

Small-Caps Trail S&P 500 By Most in 6 Years on Hedge Fund Sales

(Bloomberg) The smallest U.S. companies are trailing larger stocks by the widest margin in six years after hedge funds sold equities to pay back customers.

The Russell 2000 Index, where hedge funds own an average 13 percent of shares, lost 24 percent in October, ending a five- month streak of beating the Standard & Poor's 500 Index, data compiled by Bloomberg and Citigroup Inc. show. Hedge funds hold 10 percent of S&P 500 companies, according to Citigroup data.

Read the entire article

Bailout Funds To Pay Dividends?

Still way to many unanswered questions on Paulson's bank bailout package.


Watch the video here

Paulson's Swindle Revealed

(thenation.com) The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

Read the entire story

Pension fund gap hits $100bn

(FT.com) US companies will need to inject more than $100bn into their pension funds to cover market losses, putting them in a cash squeeze at a time when it is difficult to raise money.

The cash payment, estimated by several pension industry executives, would be spread over this financial year and next year.

Read the entire article

A Question for A.I.G.: Where Did the Cash Go?

(NY Times) The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

"You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.

Read the entire article

Short Sellers Aren't Jackals, They're Bears, Fleckenstein Says

(Bloomberg) A six-foot stuffed grizzly bear guards the entrance to the offices of Fleckenstein Capital Inc., located on a quiet, leafy street in the Capitol Hill neighborhood of Seattle. The bear sends a clear message: The man inside, Bill Fleckenstein, founder and president of the firm, is a short seller and proud of it.

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VW Briefly Rivals Exxon for Biggest Market Cap

(CNBC.com) Scarcity of stocks in Volkswagen—after Porsche bought up nearly all the remaining free float—triggered a short squeeze that pushed VW's market capitalization above that of oil major Exxon Mobil at one point Tuesday.

VW shares rose almost 150 percent Monday after Porsche announced Sunday it held stock and options equivalent to 74 percent of Volkswagen. Short sellers then scrambled to cover positions.

Read the entire article

Munger View On The Environment

You can listen to Maria Bartriromo, Mark Haines, David Faber, Jim Cramer, and the Fast Money boys or you can listen to Warren Buffett and Charles Munger. Munger's thoughts below are most interesting.

...We are setting the base for a 10 - 15 year bull run. The stock market has never performed worse in the last 10 years, yet corporate profit expansion has never been better...

Read the entire article

Governor Schwarzenegger Discusses the Economy with Warren Buffett at the 2008 Women's Conference

Interesting interview with Buffett and the California Governor from 10/22/08.

Read the transcript or watch the video here

Greenspan: "I Suck"

More on the Greenspan testimony from Barry Ritholtz at the Big Picture

(Big Picture-Barry Ritholtz) Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

............Greenspan: Bad FOMC Chair, or the Worst FOMC chair?

Read the entire story

Greenspan Concedes to `Flaw' in His Market Ideology

(Bloomberg) Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

``Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''

Read the entire article

Why Warren Buffett is Right (and Why Nobody Cares)

(Hussmanfunds.com) The best way to begin this comment is to reiterate that U.S. stocks are now undervalued. I realize how unusual that might sound, given my persistent assertions during the past decade that stocks were strenuously overvalued (with a brief exception in 2003). Still, it is important to understand that a price decline of over 40% (and even more in some indices) completely changes the game. Last week, we also observed early indications of an improvement in the quality of market action, and an easing of the upward pressure on risk premiums. te

Read the entire article

Jean-Marie Eveillard Interview

(Executiveinterviews.com)

Excellent interview with one of the best value investors around

Watch the interview here

Rating Agencies on the Griddle

(Footnoted.org) Despite the blustery weather in New York today, I’m guessing there’s a few New Yorkers who wish they were ensconced on the quiet car of the Acela instead of being chewed out by a parade of Congressmen (and women) for their role in the credit crisis. For the past four hours, I’ve had the Committee on Oversight and Government Reform on in the background as it has poked and prodded a number of different witnesses, including the CEOs of Moody’s (MCO), Standard & Poor’s (a unit of MHP) and Fitchon the role that the different agencies played leading up to the current mess we’ve found ourselves in.

Read the entire article

Whitman Sampler Of Value Stocks

(Forbes.com) Few investors in the market today are as bear-market-seasoned and savvy as Marty Whitman, 84-year-old founder of M.J. Whitman LLC, chairman and founder of Third Avenue Management and portfolio manager of Third Avenue Value Fund. Like Sam Zell, Leon Black and Eddie Lampert, Whitman's roots are in distressed-company investing.

Read the entire story

AIG CEO Demands Apology from Mad Money’s Jim Cramer

(Wall St Journal-Deal Journal Blog) Great financial slapfights in history: Aaron Burr and Alexander Hamilton. J.P. Morgan and William Jennings Bryan.

And now, AIG CEO Edward Liddy and CNBC investor and ‘Mad Money’ host Jim Cramer.

Read the entire article

Fed Sets Up New Program To Buy Money-Fund Assets

The Fed facility rewards investors who took higher risk and received higher interest rates. (Those who sat in government money market funds received lower returns). Yes, there is a free lunch--and it is paid for by the taxpayers.

(Bloomberg) The Federal Reserve will help finance purchases of up to $600 billion in assets from money- market mutual funds roiled by redemptions from investors seeking the safety of government debt.

``The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests,'' the Fed said in a statement released in Washington today. About $500 billion has flowed out of prime money-market funds since August, a central bank official said.

Read the entire article

Volcker Makes a Comeback as Part of Obama Brain Trust

(Wall St Journal) At 81 years old, former Federal Reserve chairman Paul Volcker is getting a second chance to shape his legacy with a presidential hopeful more than 30 years his junior.

Mr. Volcker has emerged as a top economic adviser to Sen. Barack Obama during a presidential campaign dominated by a global financial crisis. Their growing bond is paying dividends for each man.

Read the entire article

Turmoil May Make Americans Savers, Worsening `Nasty' Recession

(Bloomberg) The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not.

With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending.

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The Economist

I was surfing the net and attempting to log on to The Economist Magazine at http://www.theeconomist.com/ and guess what I found. Ruined my weekend.

Check it out.

Capital Gains Taxes

I agree with Mr. Ritholtz on this issue.

(Big Picture-Barry Ritholtz) I think the debate on Capital Gains Taxes is now irrelevant. Why? The huge stock market losses.

Read the entire article

Read our latest Investment Outlook-Fall 2008

Read Jolley Asset Management's thoughts on the bailout and financial markets.

Read the Fall 2008 Investment Outlook

The Confidence Game

(Wall Street Journal) There used to be too much of it. Now there's not enough. James Grant argues that the real lack of confidence is in Washington, with the administration losing faith in capitalism.

Read Jim Grant's entire piece

The Big Bear

(Economist.com/Buttonwood) AT THE end of 1964 the Dow Jones Industrial Average traded at 874.1. Seventeen years later, despite rapid inflation, the average had inched forward only to 875. It was the kind of grinding bear market that drove investors to despair. Near its end, Business Week famously proclaimed “The Death of Equities”.

Read the entire story

The Debt Trap

(NY Times) A series about the surge in consumer debt and the lenders who made it possible.

Interactive article here

Buy American. I Am

In an Op-Ed in the NY Times, Buffett explains why he is buying stocks now.

(NY Times) THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

Read the entire Op-Ed from the NY Times

New Bailout Price Tag: $2.25 Trillion Dollars

(Big Picture-Barry Ritholtz) On Monday, I said that the total cost of this bailout could scale up to $3 trillion -- I just didn't imagine it would happen by Wednesday.

We learned yesterday that the size of the bailout just tripled, from $750b to $3T. Here is the cost structure:

• $250 billion of capital into banks;
• Guarantee $1.5 trillion in new senior debt issued by banks;
• Insure $500 billion in deposits in noninterest-bearing accounts (primarily businesses accts).

Read the entire story

Four at Four: The Vortex of Selling

(Wall St Journal-MarketBeat Blog) The two-day respite has ended. After a soaring rally to open the week and a middling Tuesday that at least didn’t turn into a rout, the markets barfed out another horrific session Wednesday, culminating in another one of those late-day swoons that left major indexes not far from their closing levels Friday. The selling was wide and deep, as the brief euphoria in the banking sector was washed down the drain with a 10.7% decline in the Financial Select Sector SPDRs fund, which tracks the S&P 500’s financial sector. Heavy losses were sustained by technology, small-cap stocks, transports, and cyclicals — pretty much everybody on a day when the S&P lost 9% of its value, much of it, again, coming in the final hour.

Read the entire article

Explaining Uncle Sam’s Bet on U.S. Banks

(Wall St Journal-Deal Journal Blog) The U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp. quietly nationalized much of the U.S. banking system Tuesday. If the banking system sold its soul, we hoped it had at least gained pretty decent terms. So we went digging and found good explanations, particularly from Oppenheimer & Co. analyst Meredith Whitney. Deal Journal provides a practical breakdown on Treasury’s plan below.

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Comparing This Week To The '87 Crash

(Bespoke Investment Group) Most Dow stocks were down more this week than during the week of the '87 crash. As shown, GM was down 45%, AA was down 41%, BAC was down 39%, CVX was down 27%, and AXP was down 25%. Only two Dow stocks were down less than 10% this week: JPM (-9%) and GE (-0.32%). Maybe the most important takeaway is the returns these Dow stocks have had since the '87 crash. Who knows when, but we will go up again.

Read the entire article

How Oversold? Very Oversold

(Wall Street Journal--MarketBeat Blog) The last hour of activity Friday, when buyers finally emerged from their slumber, has helped erase some of the day’s massive losses. Needless to say, the market is still experiencing a so-called oversold condition, where various technical and sentiment-related indicators suggest buyers should be asserting themselves.

The market has a long way to go after the Dow Jones Industrial Average lost more points in one week than in any in its 112-year history. The brief burst of optimism aside, investors are still in a big hole when compared with only two weeks ago. The ongoing concerns around the banking system, for now, trump all considerations of value.

Read the entire article

TIGER CUBS MEOW DURING SEPTEMBER

(NY Post) Some of the legendary Wizard of Wall Street's so-called Tiger Cubs were cut down to size last month, suggesting even the best and brightest in the hedge fund industry have been unable to tame today's treacherous markets.

Tiger Cubs are fund managers who trained under Julian Robertson of Tiger Management, who was known for generating average returns of 25 percent a year for more than 20 years.

Lee Ainslie, for example, saw his Maverick fund drop nearly 19 percent in September alone. What's more, Ainslie's Maverick Leveraged fund, which makes greater use of borrowed money, dropped a whopping 35.5 percent for the month, The Post has learned.

Read the entire article

Dow's Worst Week Comes to an End

(Wall Street Journal) Stocks endured the widest intraday swing on record, in a fitting end to one of the most turbulent weeks in financial history.

For the first time in its 112-year existence, the Dow Jones Industrial Average swung in a range of more than one thousand points on an intraday basis. The blue-chip gauge had dropped sharply in early trading, falling nearly 700 points and dropping through the 8000 level for the first time in five years. But stocks quickly came off their lows, and by the afternoon the industrials jumped more than 300 points.

Read the entire article

U.S. May Take Ownership Stake in Banks

(NY Times-DealBook Blog) Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, The New York Times’s Edmund L. Andrews and Mark Landler reported, citing government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Read the entire article

Taking Hard New Look at a Greenspan Legacy

(NY Times) Excellent piece from the NY Times discussing how we got here. Thanks Alan.

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Read the entire article

Days after AIG's $85bn rescue, insurer hosted banquets

(Guardian.co.uk) The world's largest insurance company, AIG, spent $440,000 on a lavish corporate retreat at one of California's top beachside resorts a few days after accepting an $85bn emergency loan from the US government to stave off bankruptcy.

Details of the week-long getaway enraged legislators at a congressional hearing yesterday where AIG's former bosses were accused of spending taxpayers' money on pedicures, golf games and cocktails.

Read the entire story

How to Ruin the U.S. Economy

(Ben Stein)

1) Have a fiscal policy that creates immense deficits in good times and bad, burdening America's posterity with staggering burdens of repaying the debt.
2) Eliminate regulation of Wall Street and/or fail to enforce the regulations that already exist, instead trusting Wall Street and other money managers and speculators to manage other people's money with few or no regulations and little oversight.

Read the rest of Ben Stein's column here

Contrary Cramer Buy Call ?

(Big Picture-Barry Ritholtz) As I have said in the past, I don't like to harp on any one person. I also don't want to be a Cramer stalker. But DAMN if that headline doesn't smell like a giant buy signal.

Read the entire article

Bad Medicine

(James Grant--Washington Post) Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.

The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are "upside down," as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.

Read the entire article

Quote of the Day: Net Capital Rule

(Paul Kedrosky's Infectious Greed) Anyone care to guess who made this statement?

"....we and other global firms have, for many years, urged the SEC to reform its net capital rule..."

Read the entire story

Finance crisis: in graphics

(BBC News) It is shaping up to be one of the most tumultuous times on record in the global financial markets.

The financial landscape is going through a period of upheaval with some major firms folding, other operations merging and a limited number of companies in both the Europe and the US, being rescued at a governmental level.

Read the entire article

Can Citigroup Kill the Wells Fargo-Wachovia Deal?

(Wall St. Journal-Deal Journal Blog) What does a $6.5 billion merger involving chemicals companies Hexion and Huntsman have to do with the gigantic proposed $15.4 billion proposed deal between Wells Fargo and Wachovia?

Maybe everything.

This week, a Delaware judge ruled that Apollo-owned Hexion could not squirm out of its agreement to buy Huntsman. Hexion, the judge said, signed a deal and had to make a good-faith effort to go through with it even if the credit crunch made conditions harder. For lawyers, the Hexion-Huntsman decision was a shocker, and it showed that the Delaware courts are becoming highly intolerant of any attempts to walk away from deals.

Read the entire article

Warren Buffett's Interview with Charlie Rose

(CNBC and the Charlie Rose Program) Warren Buffett: "I Haven't Seen As Much Economic Fear In My Adult Lifetime."

Read the complete transcript

Bailout by the Numbers: How much is $700 Billion?

(Portfolio.com) Portfolio.com has an interesting interactive take on the bailout.

Go to Bailout by the Numbers

Quote of the Day: Fair Value Accounting

(The Big Picture-Barry Ritholtz) As talks about changing "mark to market" accounting we found the following to be dead on.

Read the entire article

Does Warren Buffett Think Goldman is more Credit Worthy Than GE?

(Bespoke Investment Group) Bespoke looks at Warren Buffett's investments in General Electric and Goldman Sachs---their findings are quite interesting.

Read about it here

Government Bailout will not be a quick fix for this

Click on chart to enlarge