October 21, 2008

Global Market Comments for October 21, 2008

1) More light at the end of the credit tunnel. Three month T-bill yields made it back from 0.25% up to 1.27% vs., a normal range around 1.75%. LIBOR has dropped for seven consecutive days, pointing to a slow thaw of European lending. Now that most major banks have been nationalized, the interbank loan market is essentially an all government affair. The VIX has dropped from 81% to 53% in just three days, but is still at record levels.

2) It turns out that hedge funds were major sellers of credit default swaps on Lehman bonds. They had to absorb the bulk of the $350 billion payout which is due today. That explains why the best quality names like Chesapeake Energy (CHK), US Steel (X), Google (GOOG), and Freeport-McMoran (FCX), all hedge fund favorites, had the biggest falls, while the dross held up relatively well.

3) Hollywood is making a sequel to the classic film 'Wall Street'. It will focus on the evil machinations of 'greed is good' Gordon Gekko, once he is released from prison. He has to be either a hedge fund manager, a short seller, or a sub prime mortgage broker in the new film, or perhaps all three.

4) Several China experts have opined that the real Q3 GDP figure wasn't 9%, but was really 8% or even below 5%. The government publishes inflated figures to stifle criticism of its economic policies. Gee, do you think they do that here too?

5) Traders were stunned on learning that Kirk Kerkorian is selling his 6.09% stake in Ford Motors (F), which he purchased for around $7.50/share, and is now trading at just above $2. The only reason to sell here is if you think Ford is going to zero, or if you are going to die soon. The always combative Kerkorian, with a net worth at the beginning of the year of $18 billion, is 91. His response to all of this? "I lived a year too long." At least his sense of humor hasn't withered.

6) Richard Del Bello of Conifer Securities, a prime broker and hedge fund hot house, predicts the number of hedge funds is about to see a dramatic decline, but then see a resurgence in 2010. Bonus deprived staff are bailing from existing funds to set up their own shops. Now is the best time in history to set up a new hedge fund.


The collapse of the US stock market is expected to trigger a massive restructuring of corporate America. Some of the mergers being mooted: FedEx and UPS amalgamate to create FedUp, and Victoria's Secret and Smith & Wesson combine to form Titty Titty Bang Bang.