Unstructured Finance

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.

But he told Reuters that the market is primed for short-sellers like him and as a result has gone out to raise capital for his mission: “Markets mean-revert and performance mean-reverts and even alpha mean-reverts if at least my last 30 years are any indication. And the time to be doing this is when you feel like the village idiot and not an evil genius, to paraphrase my critics.”

Chanos’ bearish views are so well respected that the New York Federal Reserve has even included him as one of the money managers on its investment advisory counsel. By his own admission, Chanos said he tends to be the one most skeptical on the markets.

“I’m from the Treasury, and I’m here to help”

Ronald Reagan famously said that the “nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’” But according to a report from SNL, the government may actually help banks when it forces them to add directors to their boards. Every bank CEO’s worst nightmare is having the government name directors to his or her board. Usually, banks pack their boards with clients or prominent people that offer prestige and potential business leads, but little substantive oversight. At the smaller banks that SNL is focusing on, that often amounts to people like the owner of the local car dealership, or the owner of the local golf equipment seller. (For a stereotypical example of a community bank’s directors, consider the board of Smithtown Bancorp, which was sagging under the weight of failed loans before being taken over by People’s United Bank in 2010.)
The Treasury, on the other hand, tends to appoint people with actual banking experience, who can do what board members are supposed to do: keep an eye on management for the benefit of shareholders. The government only does so for banks that have lost their way: the Treasury has the right to name directors to boards of banks that received bailout money under the Troubled Asset Relief Program, and that missed six quarters of dividend payments. Typically, these appointees are bankers with more than 20 years of experience.
By SNL’s reckoning, the banks with Treasury-appointed directors have racked up median stock gains of 50.38 percent since taking on the new board members, compared with a median gain of 28.22 percent in an index of bank stocks.
Of course there may be other reasons for this outperformance – for example, it may be that small bank stocks in general have outperformed larger bank stocks over the relevant time frame, or that relatively weak banks have been in greater demand from value investors betting on an improving economy. But it may also be that the government has found a fix for the principal-agent problem at banks that have stumbled into trouble.

Cash is king in housing

By Matthew Goldstein

It’s no secret that housing in the U.S. has become an investors market, especially if it’s an investor with cash to burn.

For more than a year now, we and just about everyone else in the financial media have been writing about how Wall Street-backed firms are looking to buy-up the wreckage of the housing bust on the cheap and rent out those homes until the time is right to sell them for a sweet profit. And it should come as no surprise that much of that buying is being done with cash because it’s the easiest way for an investor get a deal done quick.

Recent stats from the National Association of Realtors shows that 32 percent of all single family homes in the U.S. are being bought with that cash. But that’s not just foreclosures; it also includes homes listed by brokers. It’s a testament to how much money institutional investors like Blackstone and American Homes 4 Rent have been able to raise from high-net worth investors and others. all of whom are chasing yield in this low-yield world.

Stevie, SAC and that ticking redemption clock

By Matthew Goldstein and Svea Herbst-Bayliss

The WSJ is out today with a big story saying Stevie Cohen and SAC Capital are bracing for up to $1 billion in redemptions, or roughly 16 percent of the $6.3 billion it manages for outside investors. That’s a lot of money but sources are telling us redemptions will likely come in lower than that—think more in the $500 million range.

And more important, no matter what the figure is, don’t look for it to put much crimp in Cohen’s operation.

The deadline for submitting redemptions is Feb. 15, so there is still plenty of time for outside investors make a decision about sticking around or leaving. And even if an investor puts in a redemption notice now, those requests to withdraw money can get pulled at the last minute if the investor has a change of heart.

UF Weekend Reads

So there’s this election this Sunday in Greece and everyone–who follows the markets–is all excited. But at the end of the day, the main reason people in the markets are all up in arms is because they want to know who will get paid, in what order and most important–how much. Sadly, there’s too little focus on whether the right people/institutions are getting paid; let alone issues of social dignity and the quality of human existence. Guess that’s what the markets are all about, right?

But don’t let any of that stop you from saying thanks to your dad tomorrow. And for all of you dads out there—A Happy Father’s Day. Here then is Sam Forgione’s weekend reads:

 

From The New Republic:

Dierdre N. McCloskey spans the efforts of economists to gauge happiness.

From Foreign Affairs:

Layna Mosley offers a level analysis of euro zone government debt and how markets view it.

Wall Street gold rush in foreclosed homes heads north

By Matthew Goldstein and Jennifer Ablan

The state of Alaska is looking to cash in on the growing demand for renting out foreclosed single-family homes.

A spokeswoman for the $40 billion Alaska Permanent Fund recently approved a $400 million investment with a California-based company that specializes in buying foreclosed homes and renting them out. Laura Achee said the fund is still negotiating the terms of the deal with American Homes 4 Rent LLC.

The Alaska fund, which is managed by a state-owned corporation, is believed to be one of the first public investment arms to sink money into the market for foreclosed homes.

Hedge funds try to hook up with pension funds

by Svea Herbst-Bayliss and Katya Wachtel

In investing, as in life,  it is critical to find the right partner.

On Tuesday in Boca Raton, big hedge funds including Tudor Investment Corp., Marathon Asset Management and York Capital, as well as smaller rivals like Voltan Capital Management and Titan Capital Group crowded into a large conference room for the hedge fund industry’s version of speed dating.

Seated at tiny round tables, the managers (who are in Florida for the GAIM USA investor conference) eagerly awaited visits from potential investors like state pension funds from Wisconsin and North Carolina, and fund of funds firms like Rock Creek Group.

Every few minutes a bell tolled telling the roughly 50 investors there to move on to the next date. The ratio was about two managers for every investor. Time was of the essence as managers rattled off their skills.

Hedge fund faithful descend on Boca Raton

By Svea Herbst-Bayliss and Katya Wachtel

Balmy temperatures and sunny skies greeted hedge fund industry managers, investors and lawyers as they gathered in Boca Raton, Florida, for 2012′s first prominent industry conference.

Despite clear skies overhead, the mood was decidedly grimmer at the GAIM 2012 USA meeting, held at the swanky Boca Raton Resort and Club, as the industry faces dramatic regulatory changes after having ended 2011 on a losing note.

As managers drifted between sessions that promised “unique insights” from top traders about where to make money to how regulation will affect the industry, many quietly shared tales of woe about last year’s losses, when the average fund lost 5 percent. Top investors conceded that times would be tough in the months ahead but that hedge funds are still the way to go for pension funds and others that need to boost investment returns with strong performance.

Phil Falcone’s ray of sunshine

By Matthew Goldstein

Leave it to Phil Falcone to find a glimmer of good news to relay to the beleaguered investors in his Harbinger Capital Partners. A day after U.S. securities regulators threatened to sanction the billionaire hedge fund manger for alleged trading irregularities, Falcone told investors in his roughly $4 billion firm that not all is lost.

In a note emailed to investors the day after Falcone officially learned the U.S. Securities and Exchange Commission is considering charging him with a number of securities law violations, the former Harvard hockey star told them that nothing the SEC is looking at involves his beloved LightSquared.

Additionally, it is important to note that neither Harbinger Group Inc. (“HRG”) nor LightSquared were the recipient of a Wells Notice, nor was either involved in any of the events being investigated.  Moreover, the Wells Notices received by HCP and certain affiliates are not related to any of the HCP funds’ investments in HRG, LightSquared or their predecessors.

John Paulson’s lost advantage

By Matthew Goldstein

Hedge fund titan John Paulson has a shrinkage problem.

The billionaire manager’s flagship Paulson Advantage funds are quickly losing altitude after peaking with $19.1 billion in assets under management in March. As of the other day, the combined AUM of the Paulson Advantage and Advantage Plus funds had fallen to $15.7 billion, according to investor sources.

The Advantage funds account for roughly 44 percent of the $35. 2 billon in assets under management at Paulson. The two so-called event driven funds  long have been the manager’s largest.

And the July performance numbers for the Advantage funds should be ugly. A source tells us the Advantage Plus fund, which is a leveraged version of the plain vanilla flagship fund, was down 4.63 percent in July. With that decline, the Advantage Plus fund is down a little over 21.6 percent for the year. The plain vanilla Advantage fund is believed to be down around 15 percent for the year.

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