Unstructured Finance

For SAC employees, it’s not any given Thursday

By Katya Wachtel and Peter Rudegeair

At SAC Capital Advisors’ sprawling Stamford, Connecticut headquarters on Thursday morning,  security guards barred reporters from getting too close to the office building, holding them to an intersection a few hundred yards from the driveway.

A security guard said SAC had not added any extra security at 72 Cummings Point Rd today, when federal authorities charged Steve Cohen’s $15 billion hedge fund with wire and securities  fraud in connection with its long-running insider trading probe. But those who know the location  disagreed.

Grace DeVito, a portrait artist who lives around the corner from the Cummings Road office, said there was a “different feel” around the place today. She walked past the so-called campus with her two dogs and her daughter on Thursday morning and observed that two security guards were inspecting incoming cars to see if they had a sticker to park in the SAC parking lot. “Usually there’s no one out,” Grace said, referring to the guards.

Meanwhile, at SAC’s New York office, signs of heightened tension were more difficult to detect. On the surface at least, it was business as usual at the shiny glass office tower at 510 Madison Avenue, where SAC has several floors and its own elevator bank.

An investment banker who was at 510 Madison for a meeting said earlier in the morning he had greeted several SAC workers he knows. The man, who gave only his first initial J due to ongoing friendships with SAC employees, said the  people with whom he spoke were in good spirits, relaxed,  and it was “business as usual.”

SEC vs. SAC give rise to many legal theories

It seems everyone has their own pet theory about why the SEC chose now to move against hedge fund titan Steven A. Cohen after years of being part of the hunt along with the FBI and federal prosecutors.

Here are few of them that I got from talking to a number of legal eagles: including former prosecutors and regulators.

The most obvious one is that securities regulators, unlike federal prosecutors, are bumping up against  a pretty hard and fast five-year deadline for filing charges against Cohen and it was pretty much now or never. In pursuing a failure to supervise  charge against Cohen in an administrative proceeding, the Securities and Exchange Commission is gunning to put Cohen out of business without actually charging he has done any insider trading himself.

This summer, it’s the John Paulson show

Hedge fund manager John Paulson has shunned the limelight in recent years but in recent weeks it’s a different story, with the 57-year-old manager not only giving his first ever TV interview, he’s also set to take the stand in one of the most closely-watched trials in the country – the civil case against former Goldman Sachs trader Fabrice Tourre.

Tourre’s lawyer Sean Coffey said in a Manhattan federal court on Friday morning they intended to call Paulson to testify in the trial. The U.S District Judge overseeing the trial estimated Paulson would probably take the stand August 1.

Tourre is accused of misleading investors on a 2007 subprime mortgage deal that Paulson’s hedge fund, Paulson & Co, was betting against. Paulson’s firm had actually helped to select the securities that were packaged into the deal. The SEC says Tourre told investors that Paulson’s firm was investing in Abacus, suggesting he expected the price of the securities to rise, when actually the hedge fund was shorting it.

For U.S. equities, the bull market still has years to go

I recently chatted with veteran technical analyst Ralph Acampora,  a director at  Geneva-based Altaira Ltd.,  about secular bull trends in the U.S. stock market. A real secular bull market can last decades, and he sees this equity market uptrend as similar to the long-term bull markets in the 1960′s and, more obviously on technical charts, the 1990′s.   He pointed out that bull-and-bear trend measures and other short-term sentiment readings can change week to week, confusing some participants about the market’s longer-term path.  Acampora laid out the psychology behind sentiment in a secular bull market, which has three long phases. It starts with fear of the bear market at the stock market’s bottom. At the March 2009 low,  everyone was worried about further declines and losing money. The mood was characterized by fear and disbelief.  In reaction, the first buyers in a classic bull market gravitate toward quality stocks. They lead equities higher, because no one wants to take risk.  Investors say, “I’ll never do that again,”  about buying junk. They only want high quality, high-yielding stocks. That’s Phase 1. It began in 2009 and lasted until now.

 

 

Phase 2  is characterized by trust and belief, and is led by secondary stocks.  Since June 24, the Russell 2000 launched an advance, climbing straight up.  Acampora said a lot of small- and mid-cap stocks are making new highs, whereas some Dow Jones blue chips  are beginning to move  sideways.

 

“People are now starting to believe  that the world’s not coming to an end. They feel a bit more comfortable. Instead of just Procter & Gamble, a Dow stock, they’ll maybe buy Colgate, which does the same thing, but it’s not as high a quality,” Acampora said. C0lgate, a secondary stock, is representative of the changing portfolio mixes that are happening  now. “It’s shifting right now.  I’m saying that between March of 2009 and July 2013 that was phase 1 and we’re now walking into phase 2.” The third and final bull market phase is marked by complacency and greed.  ”That’s predominantly speculative junk. That’s your bubble,”  and is years away.

Home sweet home, Blackstone

Kay Chapman and her boyfriend were saving up money to buy a home in the Las Vegas metro area while renting a home in a nearby town. But after months of plotting a strategy to buy a home at a foreclosure auction, they’ve given up for now and will soon move into another rental home–this one owned by private equity giant Blackstone Group.

Chapman and her boyfriend had to alter their strategy because the owner of the home they are currently renting from decided to sell after seeing how quickly home prices have surged in Sin City in the wake of all the institutional buying firms like Blackstone. Chapman’s current landlord wants far more for the house than she and her boyfriend are willing to pay.

So soon they’ll be moving into a Blackstone owned home, one of some 26,000 single-family homes the private equity giant has bought in US markets hard hit by the housing bust.

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