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Thursday, August 09, 2007

More On BNB Paribas Funds

Great stuff from Sudden Debt. Hat tip Mover Mike.
There are also several highly disturbing facts:

1. These are plain vanilla mutual funds from a highly reputable bank, not some high-roller leveraged hedge fund. Supposedly ho-hum, safe and with daily pricing and redemption privileges. They are designed for the conservative middle-class investing public who are putting money away pour les enfants, or towards a house down-payment.
2. The amounts involved are quite large: as of July 27 the three portfolios together amounted to $2.8 billion.
3. The structured bonds in question are rated AA or better.

The myth of "containment" is now completely and utterly destroyed. If vanilla mutual funds are in such trouble, can you imagine what is happening to the balance sheets of hedge funds? For example, those that bought mezzanine CDO's on margin which now have NO BID? Or, how about those that wrote naked CDS's on those same CDO's?

the three bnp funds are trivial. 3 billion.

small potatoes.

the amount of "junk" mortgages is also small as a % of overall mortgages here.

specific funds with specific exposure will fare badly OVER THE SHORT TERM.

this means CORRECTION, not crash as you breathlessly hope for (to justify your YEARS of endless negative predictions!).

as they say, you have predicted more recessions that we've had.

we are not in recession.

most corps are making good profits; more americans are making more money than ever.

the fundamentals are good.

the stock marlet is still 7% ahead for the year, and may well go down some more before ending the year reasonably ahead and closer to 14,000 than 11,000.


and relax: you can make money on the way down and the way up in the market.


or di you?
howze dat sayin go???

you've predicted 12 out of the last two recessions, and 20 of the last one depressions.

gimme a break!

(luvya anyway!)

when the whole world was REALLY crashing, Potter was BUYING, not selling.

(it's a wonderful life)

in the next week or so we will all have better/best buying opportunities.

whatever "crashes" the most, that's what buffett will be buying.

after all the hurricanes a few years back he started buying the overly hard hit insurance stocks.
Reliapundit - I wouldn't be buying mortgage insurers now.

We are moving into the recession I predicted. I haven't predicted more than have come around. I hate 'em.

To be honest, I'm praying I'm wrong about this one. It will not be a happy event for me.

I do not short. This is because of (gasp) basically religious convictions. I feel free to sell, though. I am not going to boast to you, but there are quite a few people who make decent sums of money from what I do.

I will tell you that I am very positive about the long-term potential of the economy. I am investing mostly in private concerns; the short-term horizon that seems to govern most publicly traded firms really worries me. But I believe that the opportunities out there are almost unprecedented for most individuals willing to work hard and able to access a minimum of capital.

this is a crisis, but a minor one.

and a correction to boot.

als well.

So I told the hubby that the market was going to tank Monday and that it will be worse by next Monday. We haven't sold anything yet.

What is the difference between public and private?
1. 97% of the "sub par" mortgages are current.
2. Problem with hedge funds run by totally honest people from all the right places, but who been the smartest guy in the room for at least 20 years are two. First is the fact that all are computerized formulas based on the past (a totally discredited method to all us morons). Because none would work if their "secret" calculations were revealed they are secret. Locked away. Now check this: when these black box funds are checked weekly or whatever for their current worth the managers calculate it from another formula and publish things like a hundred million dollars WITHOUT ACTUALLY COUNTING THE MONEY. So we not only had "maze" trading, we had phantom asset valuations. These assets are actually on markets around the world and suddenly something "outside the box" happened and there was a margin call. Big players don't get margin calls for a few hundred dollars or a few thousand dollars. Rich pricks get margin calls for tens of millions of dollars and since a hundred hedge funds are trading the same stuff the mass margin call for hundreds of millions of dollars could not be met and shit, as they say, happened. While I respect the secrecy of the trading tactics I don't respect the blind calculations of net asset value.
Howard - I am sure that is why the Fed is checking asset valuations.

I really wonder if the margin call isn't the problem. I believe ANY event which generated a margin call would generate what we are seeing.

Dr. M. - traded on stock exchanges. Privately held isn't traded. You might have a corp w/ stock, but if it isn't on the stock exchange the rules are very different.
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