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.

Carl Icahn in his own words

Icahn’s Big Year in investing and activism

By Jennifer Ablan and Matthew Goldstein

We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.

There was much Icahn wouldn’t talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won’t say why he decided not to join ValueAct’s Jeffrey Ubben’s activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.

Never one to mince words, Icahn said he takes issue with Bill Ackman’s brand of activism which he believes borders on micromanaging by telling chief executive officers how to do their jobs. “I think Ackman is the opposite of what I believe in activism. You don’t go in and you don’t go tell the CEO how to run his company.”

Money manager titans who can’t wait until 2014

The year can’t end fast enough for some of the world’s biggest investors.

Bill Gross, who many like to consider the King of Bonds, lost one of his prized titles last week when his PIMCO Total Return Fund was stripped of its status as the world’s largest mutual fund because of lagging performance and a swamp of investor redemptions.

The PIMCO Total Return Fund — somewhat of a benchmark for many bond fund managers — had outflows of $4.4 billion in October, marking the fund’s sixth straight month of investor withdrawals, and lowered its assets to $248 billion, according to Morningstar.

FBI to press: How are we doing?

The Federal Bureau of Investigation’s press office has embarked on a bit of customer satisfaction research: The department is asking journalists to rate its performance during the hostage standoff in Alabama that ended last week.

It is a rare glint of cooperative spirit in the traditionally contentious relationship between journalists and public relations specialists.

A public affairs officer sent journalists an online survey asking them to say whether the information the FBI gave them during the early days of the standoff was “sufficient” – enough to do their jobs – or whether it was too little.

What investors can look for in 2013

By Matthew Goldstein and Jennifer Ablan

Big money managers do not always agree–that’s what makes a market–but if there was one consensus coming out of our just concluded Reuters Investment Outlook Summit, it’s that next year will probably be another bang up one for the bond market.

Now the credit markets will have a tough time repeating the kind of numbers put up this year, especially with the Federal Reserve doing its darndest to push down borrowing costs and yields by buying  mortgage backed securities and even Treasuries. Speaker after speaker who joined us in New York said “junk” bonds, corporate debt, mortgage- and commercial-backed securities and even Treasuries “on a trading basis”  should do well for no other reason than credit markets still aren’t showing anything close to the kind of froth we saw in the run-up to the financial crisis. The sense is that it may be another 2 or 3 years before we see excesses build up in the system again.

Oh sure, there are exceptions such as, bonds being sold by companies to pay special dividends to their private equity backers (several speakers said to avoid these). Other guests also are wary of the junk bond market, noting with yields coming down the risk to reward premium isn’t looking as good as it did earlier this year. And at least one speaker said he would avoid mortgage REITS because there’s too much leverage baked into their holdings.

Becoming comfortably numb to income inequality

By Matthew Goldstein and Jennifer Ablan

About a year ago, Nobel Prize-winning liberal economist Joseph Stiglitz made a surprise appearance at the Occupy Wall Street camp site in Zuccotti Park, giving a speech to rally the protestors and support their causes of bringing attention to the economic divide between the 1 percent and everyone else in the U.S.

Today, the protestors in lower Manhattan have all but disappeared with the attention on Occupy Wall Street gone along with it.

Stiglitz said the effort wasn’t for nothing, however.

“I think Occupy Wall Street served a function in that it brought to the attention of the American public two things…the distortion of our economy and inequality,” Stiglitz told Reuters TV this week in a wide ranging interview (led by Jenn) at Columbia University, where his a professor. Stiglitz said the protests helped serve notice that while a small group of Americans are doing far better than the other 99 percent, “we all have to get together” for the country to truly prosper.

UF Weekend Reads

Two weeks of speechifying by the Dems and Reps has come to an end. Well not really–but the conventions are over. And for all the talk, there is one issue that got short-shrift–a solution to the nation’s still unfolding housing crisis.

Oh sure, there was talk about foreclosures and people struggling to pay the mortgages on their homes, but not a lot time for potential solutions.  And that’s unfortunate because as has been noted many times before, it’s going to be hard for the U.S. economy to take off as long as too many consumers are being crushed by mortgage debts they can barely afford.

Indeed, the disappointing August jobs report is a sober reminder of just how much work remains to get the economy humming again.  As we’ve said many times before on U,F it all still comes down to fixing housing, housing housing.

Eminent Domain reader

Jenn Ablan and I have done a lot reporting on Mortgage Resolution Partners’ plan to get county governments and cities to use eminent domain to seize and restructure underwater mortgages. As we’ve reported, it’s an intriguing solution to the seemingly intractable problem of too much mortgage debt holding back the U.S. economy. But it’s also a controversial one that threatens to rewrite basic contractual rights and the whole notion of how we view mortgages in this country.

And then there’s the issue of just who are are the financiers behind Mortgage Resolution Partners and whether they’ve gone about selling their plan in the right way.

The debate over using eminent domain has sparked a lively debate on editorial pages, on blogs and in other media, and that debate is likely to continue now that Suffolk County, NY says it is looking at eminent domain just like San Bernardino County, Calif.  So here’s a bit of sampler of some of the differing views and coverage on this important topic:

UF Weekend Reads

The heat is on all across the U.S. as we gear up for the 4th of July. And in Europe, the heat over the euro zone financial crisis seems to have abated for a day at least, judging by Friday’s big stock market reaction.

So is the euro zone financial crisis over? No, and a lot more work needs to be done. It’s also likely that Friday’s rally will give way to more selling pressure by next week. It’s the Madness of Wall Street and it’s simply how things go.

But here’s the thing: this week’s ability of European leaders to move toward getting something done–even if it is just a bigger band-aid–is one more indication that at the end of the day this crisis will be solved in someway. Oh sure, some nations will get hurt–and more importantly a lot of ordinary people that had nothing to do with the financial crisis will get hurt the most. However, maybe it’s time for everyone–especially those in the media, at hedge funds, bloggers and on Twitter–to back away from some of the worst doom-and-gloom hysteria. Yes, things are bad and could get worse, but is the world really coming undone over the euro zone crisis?

UF Weekend Reads

A beautiful summer day in the New York area and the jinx is broken. What jinx, you ask? Well if you’re a long suffering Mets fan you know what I mean–finally a no-hitter. #LETSGOMETS! Oh and yes, here is Sam Forgione’s latest edition of weekend reads. Also don’t forget to follow Sam on Twitter @samuelforgione

 

From The Atlantic:

William D. Cohan challenges popular beliefs on the cause of the 2008 financial crisis.

From BusinessWeek:

ETFs are becoming increasingly risky to retail investors, Christopher Condon writes.

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