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dcollon

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    The King of Oil: The Secret Lives of Marc Rich

    in Books

    Posted

    [amazonsearch]The King of Oil: The Secret Lives of Marc Rich[/amazonsearch]

     

    I recently read this book about Marc Rich and really enjoyed it.  I want to point out that I'm not saying he is a good or bad person or his business interests were good or bad.  Simply, I liked the book.

     

    "Macro" Musings

    in General Discussion

    Posted

    Just one person’s view, but here you go…

     

    From Mark Grant at Southwest Securities

     

    When the bank depositors money was confiscated in the Cyprus bailout we all wondered, and rightfully so, if this was to be the template for bail-ins in the European Union. Cyprus marked a decided shift in policy for Europe. The days of using taxpayer money had come to an end and a new era had begun. The game had changed.

     

    In considering the bankruptcy for Detroit I wonder if we have not reached a shift in policy in the United States and what it might mean for the Municipal bond market. A Federal Judge has now ruled that the filing is valid and that the Chapter 9 proceeding is legitimate and will be decided on in Federal court. So here is the first piece of the template; municipal bankruptcies will be a matter of Federal law and not state law.

     

    The current plan, not accepted by anyone yet, means a 90% loss for Detroit municipal retirees, an 81% loss for unsecured creditors, and a 75% loss for secured creditors. No joy in Mudville for any camp here. There will be the normal bickering, shouting and hand waving as everyone fights over what little money is left.

     

    What also is becoming clear, and long a speculation about Municipal bond bankruptcies, is that neither the County or the State or the Federal government has any intention of helping Detroit through this process. It is becoming quite clear that the city is being left on a stand-alone basis.

     

    Sen. Lindsey Graham, R-S.C., has introduced an amendment to ban the Federal government from bailing out Detroit or any other municipalities. "There is no doubt Detroit has huge problems, but they are facing problems of their own making," Graham says in e-mailed statement. Graham's amendment to the Treasury Budget Bill would ban using Federal funds to buy or guarantee any asset from any municipal, local or county governments facing default. The measure also would prohibit the Federal government from issuing lines of credit or giving any financial help to avert bankruptcy. In other words no money or any sort of guarantee for "debtor in possession" financing.

     

    This then raises several delicate questions about how Detroit, or any other municipality, is going to exit from bankruptcy if no bond seniority is available or can be granted. What I think can be said here is that the risk of owning Municipal bonds has just risen by a significant measure and that a new appreciation for the risks associated with Munis must be considered and accounted for in the spreads of Munis to other types of bonds.

     

    If a city is going to be disassociated from a State and if a State is not going to be supported by the Federal government then the old suppositions that have long been a part of the Municipal bond market must be re-examined. The bond issues are just the normal fighting about money ones. The pension issues though may raise problems of a more difficult sort.

     

    If the municipal works are going to lose a large part of their pensions then you may expect a significant hue and cry in both the State and Federal legislatures. It may be that eventually each State oversees the municipal pensions in their State in a manner which has not been found before. This would result in all kinds of new regulations and oversight that are not in place currently. Also if the Federal government would decide to guarantee in some form municipal pensions then large liabilities would be added to the Federal deficit.

     

    However this plays out I think it is a reasonable assumption that the regulations for Municipalities and their pension obligations will not be what has been found in the past.

     

    Seth Klarman's Baupost Hedge Fund Loses More Than $150 Million On Gold Miners

    in General Discussion

    Posted

    G2,

     

    I'm not involved with the space, but there is some good discussion in this thread http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/gold-miners/msg111662/#msg111662.

     

    I have a ton of respect for Mr. Klarman, but thought I should post the article since I like to read anything I can find about him and Baupost.  Yours Truly, you are absolutely right.  It's a small position/loss since the author stated that Baupost's aum is $28 bil (not sure if that is still right or not). 

     

     

    "Macro" Musings

    in General Discussion

    Posted

    From Mark Grant at Southwest Securities:

     

    I have long held the opinion that the markets, all of them, have been buoyed by what the Fed and the other central banks have done which was to pump a massive amount of money into the system. There are various ways to count this but about $16 trillion is my estimation. The economy in America has been flat-lining while the economies in Europe have been red-lining and while China has claimed growth their numbers did not add up and could not be believed.

     

    In other words, the economic fundamentals were not supporting the lofty levels of the markets which had rested upon one thing and one thing alone which was liquidity. I have also stated often enough that the long awaited reversal would take place either due to an "event" or due to a change in the Fed's position where the liquidity was going to be stopped. In one of the clearest and most open meetings ever conducted by the Fed, in my opinion, they said quite clearly that the end to its liquidity operations was coming and while the postulated this and that if the markets did this and that the message was quite clear; we are going to unwind what we have we have done.

     

    Yesterday was the first day of the reversal. There will be more days to come.

     

    What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin's absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here.

     

    The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force.

     

    Yesterday was not pretty but today is likely to be worse. Gold is getting smashed, equity futures are down significantly, bonds are taking it on the chin and the only thing that is up is the Dollar. Then besides the Fed's announcement; China is a rose dying on the vine. Their overnight repo rate hit 25% as the fear is palpable in Asia between the collapse of the Everbright Bank and the antics in Japan. The yield on China's three year government bonds rose 12.5% last night while their flash PMI plunged to 48.2 which is the worst number in nine months.

     

    Now you may be wondering what to do next. You will hear a lot of people in the media today saying that this is just a normal part of the market's cycle.

     

    This is not the case.

     

    The Fed has signaled its intentions very clearly. You should be taking profits, taking money off the table and building up your cash positions. Your supplier of opiates has just informed you that your drugs are going to get cut off and preparations need to be made because there is no other supplier of this opiated cash. You can accurately think of the world's central banks as a "cash cartel" and the distribution is being ended.

     

    How bad it is going to be is uncertain but BAD, with capital letters, in my estimation. For four years we have lived on drug money supplied by the Fed and their colleagues and what the emperors' can give; they can take away.

     

    Eventually Treasury yields will go back down because the Fed will be buying more bonds than the Treasury needs to issue but for now the "leverage issue" will overcome that reality. Mortgage rates will be heading higher, the Real Estate market is going to correct and the days of wine and roses are now behind us.

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